Redevelopment of Tolworth Tower Tolworth Doc. 8 Office Marketing Report Prepared for CNM Estates 06 May 2015
MARKETING REPORT TOLWORTH TOWER OFFICE ACCOMMODATION Prepared by: Andrew Armiger CATTANEO COMMERCIAL 19-23 High Street Kingston upon Thames Surrey KT1 1LL April 2015
Contents 1. Instructions... 3 2. Tolworth Tower. 4 3. Tolworth Tower Office Accommodation Key Issues.. 5-6 4. Ownership Background 7-8 5. Marketing of the Offices from 2011 following Administration 9-11 6. Tolworth Tower Weakness from a Tenant s Perspective.. 12-13 7. Tolworth Tower Viability as Offices.. 14 8. Alternative Solutions 15 Appendix 1: Statement from Joint Receivers via BDO LLP, 07/11/2011 Appendix 2: Tolworth Tower Vacancy Schedule, 24/08/2011 Appendix 3: Surrounding Area Office Vacancy, 18/08/2011 2
1. Instruction 1.1 This report is provided to assist Indigo Planning with supporting documentation for a full planning application for the redevelopment of Tolworth Tower with a comprehensive mixed-use scheme. 1.2 Cattaneo Commercial is a leading commercial property agency practice operating throughout the south west M25 Sector which includes Surbiton, Tolworth and all other towns within the Borough of Kingston. The company probably receives close to 100% of all enquiries for office premises within the Borough. 1.3 Cattaneo Commercial have been the sole letting agents for Tolworth Tower since 1990 i.e. over the last 25 years and therefore have a unique knowledge of the building and it s letting prospects. 1.4 I have personally been involved with the letting of Tolworth Tower since 1995 whereby I have handled the majority of letting deals that have occurred in the building since that time. 1.5 I have also been involved with Cattaneo Commercial in an estimated 50% of all office letting transactions that have occurred within the Royal Borough of Kingston and have an intimate knowledge of trends and demands required by office occupiers. 1.6 I am a Director of Cattaneo Commercial and, as such, have a unique position to monitor commercial property trends in the area. 3
2. Tolworth Tower 2.1 Tolworth Tower is an iconic Landmark office building constructed in the 1960 s comprising a 22 storey tower block with 21 floors of office accommodation. Adjoining the main tower is an eight storey low rise block known at The North Wing providing six floors of offices accommodation and a Travelodge budget hotel. At ground floor level is a Marks and Spencer supermarket. There is substantial car parking on the site at basement, surface and multi storey levels with an estimated ratio for the offices at 1 car space per 500 sq ft of offices. 2.2 The office accommodation provides floor plates averaging in size of approximately 8,500 sq ft per floor, with each floor being capable of being let as a whole or to be sub divided and let in smaller suites which has been the case in the past. The specification for the office space provides the following: 2 pipe fan coil air conditioning Suspended ceiling tiles Perimeter trunking 6 x 20 person passenger lifts Male and female WCs The quality of the office specification varies floor by floor in the main building. The low rise north wing office space has been stripped back to a mainly shell and core condition excluding part of the second floor and, as such, requires to be fully refurbished. 4
3. Tolworth Tower Office Accommodation - Key Issues 3.1 Tolworth Tower is a1960 s prominent landmark building but the image is now considered somewhat dated by office occupiers. From our experience there are a number of contributing factors that do not assist office take up as follows: 3.2 The approach to the main office entrance is difficult to find. Access is via a slip road off the A3 Kingston by-pass close to a main junction/roundabout which experiences huge traffic congestion, particularly early in the morning and at late afternoon periods. Furthermore the approach to the entrance is via a secondary road with shared use by local residential users. 3.3 The main office entrance is situated next to the main loading and unloading bay for Marks and Spencer. This location is often blighted by large transport lorries blocking the approach area, which as such does not enhance an appropriate image as required for office occupation. 3.4 Floor plates within Tolworth Tower are restrictive in length and height. Due to design the service core intrudes into the floor area, thereby reducing the scope for a consistent open floor area and which, to an extent, means that part of the floor area effected by the service core to be regarded as non-useable office space. 3.5 Furthermore, the floor to ceiling height is restrictive with an approximate floor to ceiling area of some 2.35 metres which prevents the inclusion of a raised floor without diminishing the height levels further. The lack of a raised floor is a factor which has prevented many potential office tenants to consider Tolworth Tower for their occupation. 3.6 Within the floor plates are a series of pillars (a common feature within a 1960 s office building) which runs down the spine of the main office floor area. As such, this creates a notional fire corridor between the entrance from the service core and the far wall staircase, thereby leaving an essential area within the office floor as being restrictive for office occupation. This also limits the scope of flexibility for office use within the layout. 3.7 The common areas and, in particular, the WC s are small and not appropriate in size for the number of potential office occupiers that would be users for each floor. 3.8 The building overall requires upgrading both externally and internally. With the exception of floors 10 and 11, which were refurbished in 2008, there has been no essential works undertaken to the building in recent years. 5
3.9 In particular, the six lifts and the common areas badly required attention whilst there was an ongoing problem with the air flow from the air conditioning system. 3.10 The building is now some 55 years old and the layout and specification are typical of their time and does not readily lend to adaptation to meet the changing trends in today s office market. 6
4. Ownership Background 4.1 Since 1990 Cattaneo Commercial have acted for 3 landlord owners at Tolworth Tower and since 2011 the appointed Receivers. 4.2 Between 1990 and 2000 the property was owned by Hermes, a major UK Fund, who in 1995 undertook a substantial refurbishment of the common areas and some of the office floors. 4.3 Around 2000 Tolworth Tower was acquired by Treasury Holdings, an Irish based Investment and Development company. They undertook a refurbishment of the second floor within the North Wing as a requirement from Close Brothers who required additional office space to complement their existing space within the main tower building. 4.4 Treasury Holdings found the office market in Tolworth challenging and subsequently agreed to let a major part of the North Wing to Travelodge as a hotel. 4.5 The Local Authority recognised the difficulties faced by the owners in attracting office tenants to the building and were supportive for this change of use. 4.6 The letting to Travelodge was completed around 2003. 4.7 In 2006 Tolworth Tower was acquired by Stevenor Investments, a wholly owned subsidiary of Target Follow, a Norwich based Investment company. 4.8 A refurbishment programme was drawn up but with the exception of the tenth and eleventh floors was never implemented. This was mainly due to poor letting activity for Tolworth Tower, compounded by the banking crisis in 2008 when business confidence was totally eroded. The refurbishment of the tenth and eleventh floors was undertaken based on pre-let terms having been agreed with Close Brothers who required further space within the Tower and therefore there was no risk for the landlord in undertaking these refurbishment works. 4.9 In order to generate tenant activity Stevenor converted the nineteenth floor into a number of serviced office suites to try and attract smaller start-up companies. 7
This did not prove to be entirely successful and the view for converting further floors into serviced office suites was discounted. 4.10 With office market conditions continuing to deteriorate and with no funds available to the landlord for undertaking works the overall internal presence of the building fell further into decline. 4.11 With there being a lack of tenant interest for the office accommodation with no signs that the letting market would improve may well have been the significant contributing factor in forcing Stevenor Investments into administration. 4.12 In January 2011 Stevenor Investments was placed into Administration and we were advised that all future decision making would then be undertaken by the Joint Administrator, Sarah Rayment and Shay Bannon of BDO LLP. 8
5. Marketing of the offices from 2011 following Administration 5.1 We were advised around January 2011 that Stevenor Investments had been placed into Administration whereby we would then be reporting to the Joint Receivers via BDO LLP (See Appendix 1). 5.2 At the same time we were advised by the Administrators that we would be required to report to a representative of Stevenor Investments whose role would be to oversee the marketing and deal with letting terms at Tolworth Tower whilst ultimately taking their further instructions on all matters through the Administrators. 5.3 At that time there was 88,762 sq ft (8,250 sq m) of vacant office space within the main building and the North Wing representing some 44% vacancy rate of office space (see Appendix 2). 5.4 Furthermore, Cattaneo Commercial were marketing some 383,838 sq ft of offices in the surrounding areas (see Appendix 3). 5.5 With there being a considerable amount of available offices and with demand being small in number Stevenor / Administrators were reluctant to deal with upgrade and refurbishment issues within the Tower main building and North Wing. 5.6 It was clear from our initial discussions with Stevenor / Receivers that having considered the poor office letting market conditions they were not prepared to make an outlay of improvement costs for the building or to meet any meaningful marketing expenditure to attract tenants. 5.7 Our role was to continue offering office space at Tolworth Tower from any newly received enquiries based on the point that being the leading commercial agency practise in the area we should receive all potential enquiries for offices. 5.8 As such, we had to rely on existing marketing literature, continue to use a web site which had been specifically created for Tolworth Tower offices several years previously. In addition, an agency board was retained on the first floor car park above the retail units facing Tolworth Broadway shopping centre whilst a further agency board was placed at the front of the building in large stilts overlooking the A3 Kingston by-pass. 9
5.9 We approached existing tenants within the Tower main building, in particular Close Brothers in order to see whether they would require additional office space but they declined citing ongoing management issues. 5.10 We contacted many other leading companies in the surrounding area in order to see whether they would consider taking office space within Tolworth Tower, without success. 5.11 Initially, soon after administration the Stevenor Investment representative travelled down from Norwich bi-monthly to discuss potential tenant interest but from late on 2011 these meetings no longer occurred with update reports being then conducted by phone. 5.12 Throughout 2011 there were no new lettings to occur at Tolworth Tower other than 2 small serviced office lettings undertaken on the 19 th floor. These lettings were based on a fully inclusive rental basis and involved small office suites. 5.13 By the end of 2011 existing tenant dissatisfaction became more noticeable with the possibility that we would lose tenants thereby increasing the onerous vacancy rate. 5.14 In spring 2012 it was decided to reduce the quoting rent from 19.50 per sq ft to 16.50 per sq ft in order to generate more interest. 5.15 Although these revised quoting terms were helpful, given the quality of the available floor space, it did not generate any more material interest. 5.16 Around mid-2012 it was brought to our attention that Close Brothers and its sister company, Close Asset Finance, were looking to relocate from Tolworth Tower and the North Wing. Discussions were immediately held to see whether Close would be receptive to receiving a revised competitive rent and regeared lease terms, however we were advised that Close had reached a decision that the building was too dated and did not provide the right image for the company s staff and clients. Furthermore, the ongoing management issues made occupation difficult with too many disruptions occurring during the working day through M&E problems. This was devastating news for Stevenor/Receivers to be faced with losing the main office tenant occupier within the Tower main building and the North Wing that was providing 23% of the total office income. 10
5.17 In 2014, following an extensive search of the surrounding area, Close completed the signing of new lease terms to relocate into Wimbledon Bridge House, Wimbledon whereby, as a result of major refurbishment works being undertaken at that building, Close have been carrying out a phased move from Tolworth Tower. 5.18 With the prospects of there being a significant void in office space, a lack of demand for the space and with Tolworth Tower falling further into disrepair with massive cost implications, the Administrators decided to sell the property as a mixed use investment. 5.19 Knight Frank LLP, a West End commercial property agency, were instructed by the Administrators to market Tolworth Tower as an investment opportunity. 5.20 A brochure was prepared and circulated to the market targeting mainly investment and development groups both domestically and internationally. The property was also advertised in the Estates Gazette, a major commercial property journal and a banner with the Knight Frank logo and telephone number was placed at the front of the building simply stating For Sale. 5.21 Subsequently we were contacted by several buyer parties who required our background knowledge and history on the office tenancies and the prospects of reducing the vacancy rates. 5.22 It became evident that there was notable interest from buyers considering alternative uses in order to create a more viable investment with the slant being towards a residential change of use. 5.23 I understand that following a 4 week marketing programme whereby all prospective buyers were required to complete their due diligence, a date was set for best bids to be submitted by all interested buyers. Thereafter I understand that the property was sold to CNM Estates. 11
6. Tolworth Tower Weaknesses from a Tenant s Perspective 6.1 I have been involved with over 90% of the office lettings that have occurred within Tolworth Tower and the North Wing therefore I consider that I have a unique insight into tenants perspectives of the shortcomings and weaknesses of the building. 6.2 Image this is now an important consideration from tenants who are often seeking vibrant, bright and modern office space which will enhance their company s profile. A significant difficulty that I have encountered is to persuade prospective tenants to inspect Tolworth Tower, as the perception being that it is a dated office building of its time and as such does not provide an appropriate modern image. 6.3 Building approach the building suffers from a design fault which may have resulted from the original pre-letting of the ground floor as a supermarket. I believe at the time emphasis may have focussed on the ground floor letting as a supermarket, now a Marks and Spencer superstore which has the benefit of the profile entrance facing Tolworth Broadway main shopping centre whilst the main office entrance is situated on the reverse side of the building where there is no visual or noticeable presence. Furthermore, access to the office entrance is approached from a secondary road (Ewell Road) and off a slip road from the A3 Kingston by-pass, whereby office tenants often complain that the entrance is difficult for their customers or clients to find. The access approach and main office entrance is a major problem which I have encountered from tenants who are considering Tolworth Tower for office occupation, which is further compounded with what I consider to be a further design fault with the main loading and unloading bay servicing the Marks and Spencer superstore being situated next door to the main office entrance. As such, I often encountered large container lorries blocking the main entrance. In one instance the Chief Executive of a major company that had shortlisted Tolworth Tower for their occupation was unable to drive into the parking area due to lorry obstruction. He had several of his board directors with him for this inspection and, due to this issue, they immediately decided not to even go inside the building and withdrew their interest. 6.4 Office Floor Layout - A typical floor within Tolworth Tower and the North Wing provides a limited floor to ceiling height which I gauge to be approximately 2.7 metres floor slab to ceiling slab. As such this restricts the potential for providing a raised floor without limiting the floor to ceiling height further. I have found that there are tenants with large wiring usage which have turned down taking office space within Tolworth Tower due to the constraints of the narrow floor to ceiling height. This is particularly noticeable when you consider the overview of an entire floor. 12
6.5 Air Conditioning Tolworth Tower still incorporates the original format of air conditioning system with air being transmitted via grids outlets around the perimeter and extract via a central bulkhead. This has made partitioning difficult and there has been continuous complaints from occupiers that there is a constant irregular flow of warm and cool air. This has meant that tenants have to incorporate ceiling mounted cassettes in order to provide some balance over heating and cooling control. In my view the entire system is antiquated and requires replacement which, based on occupancy levels in recent years, was not considered viable. This has resulted in tenants not being prepared to renew leases at expiry time. I have had many conversations with dissatisfied tenants on the air conditioning who find it difficult to understand why they must pay a high service charge expenditure without being provided a satisfactory air conditioning facility. 13
7. Tolworth Tower Viability as Offices 7.1 It has to be considered whether Tolworth Tower has reached the end of the road as a viable office building that will attract office occupiers. 7.2 The building has many issues which continue to detract office tenants which I have highlighted in this report. 7.3 I have been involved with the letting of this building over the last 20 years and throughout that time there has been large areas of office space that have remained vacant. In fact, the only time that there was any notable take up of space occurred around 1997/1998 when the then landlord, Hermes, drastically cut the quoting rents to sub 10 per sq ft. 7.4 Throughout my involvement with the building there have been only 2 main occupiers namely Government departments and Close Brothers. We now know that Government departments are reducing their occupational office space requirements in Greater London whereby they are unlikely to consider taking accommodation within this location. Close Brothers are moving to Wimbledon into a high profile modern office building which, we are advised, will now provide their company with a better image than can ever be offered at Tolworth Tower. 7.5 Tolworth Tower and the North Wing require a considerable level of expenditure investment in order to try and bring the office space up to an acceptable specification standard in order to meet today s office requirements. The question for any owner is whether such a level of expenditure can be justified on a building located in a secondary office location, which has had some 20 years of struggle in securing tenant occupation. 7.6 Achievable rents in Tolworth will not be sufficient to support the required building refurbishment, upgrade, ongoing management issues and maintenance. 7.7 The costs for a speculative refurbishment and upgrade programme will be enormous whilst, at best, rents in today s market based on Grade A specification in the Tolworth location are likely to be sub 20 per sq ft i.e. a non-viable rent. As such, there would be a considerable risk to an owner to embark on an extensive refurbishment programme. 14
8. Alternative Solutions 8.1 I have, throughout this report, highlighted the short comings of Tolworth Tower for office occupation and in my view in today s market with office tenants becoming more discerning over their requirements over specification, image and location I believe that it will remain an ongoing problem to achieve a meaningful level of occupation. 8.2 I would suggest that there must be other solutions to encourage occupation of this building and, looking at the strength of the current market, I would propose that a mixed use occupancy, combining residential and offices, should be considered. 8.3 In that event there would be an opportunity, I foresee, for the building to become more substantially occupied. It is evident that the historic high levels of vacant offices demonstrate that the existing office space is not suitable for this building whereas a more consolidated level of offices within a part mixed scheme will be more sustainable and less likely to be subject to high vacancy office levels even in difficult times. 8.4 The cost implications to substantiate a mixed use building would be justifiable to an owner particularly with there being less risk as the building will benefit from increased occupation. It is well documented the shortage of residential accommodation in the area and Greater London generally. 8.5 A mixed scheme providing better occupational prospects will enhance the local community and, in particular, the retailers of Tolworth Broadway who would see improved trading. 8.6 This is a critical time for Tolworth whereby potential occupation of Tolworth Tower and the North Wing is essential to retailers and local community in the area. If the building remains as offices I believe the letting prospects will remain uncertain, whereby the building will then fall into further disrepair and become a blot on the landscape. 15
Unit Car Parking NI Area sq NI Area sq ft m ERV pa ERV psf Rent Under Offer pa Rent Under Offer psf Inclusive Date Vacant Comments SC pa SC psf Insurance Rent pa North Wing, Fourth Floor, Suite A 16 8,230 765 106,990 13.00 0 No 24-Jun-2011 Unrefurbished with previous tenants fit out and partitioning. No A/C North Wing - Fifth Floor North Wing, Fifth Floor, Suite A 7,962 740 79,620 10.00 0 0 No Space stripped out to shell condition. HOT's issued to Kingston University for the conversion of the North Wing office floors (Flrs 3-7) to student accommodation. Currently on hold. Rates Payable pa Total Void Cost pa 54,629 6.64 2,599 58,437 115,665 52,851 6.64 2,175 0 55,026 North Wing - Sixth Floor North Wing, Sixth Floor, Suite A 7,962 740 79,620 10.00 0 0 No See comment for North Wing - 5th Floor. 52,851 6.64 2,175 0 55,026 North Wing - Seventh Floor North Wing, Seventh Floor, Suite A 7,962 740 79,620 10.00 0 0 No See comment for North Wing - 5th Floor. 52,851 6.64 2,175 0 55,026 Car Park 110 0 0 Yes 87 spaces on the First Floor car park operated undert a verbal agreement by RCP Parking Ltd as a public pay & display facility - income to landlord c 15k pa. 4,850 4,850 The value of the vacant spaces is reflected in the ERVs of the vacant office accommodation which assume that parking will be allocated at a ratio of 1:500 sq ft. Totals 173 88,762 8,245 965,529 0 589,242 25,394 471,834 1,086,469 Letting Agents Cattaneo Commercial Contact: Bob Cattaneo Tel: 020 8546 2166 Page 2 of 2 Created: 24/08/2011
APPENDIX 3 15/08/2011