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Commercial commitments

Relationships can be as important as price for office developers

Getting work from developers is all about relationships. “They want to know the price they get is deliverable two to three years down the line and that is the reason relationships are key,” says Simon Rawlinson, head of strategic research and insight at consultancy at EC Harris. For this reason many developers are keen on using contractors whose work they know well.

Cumbria-based developer Kingmoor Park falls into this category and often uses the larger local builders. “We tend to use people we have used before,” says the company’s property manager Ross Nicholson.  It usually has three to five contractors in the tender process. It knows the local market but still looks at contractors’ previous projects and speaks to their past clients. 

London developer Exemplar tends to stick to mainstream contractors, says its construction director Campbell MacDougall. The developer looks at the contractors’ teams, their track records of delivery and other similar projects they have done. He says the tender process starts from the moment the pre-qualification questionnaire goes out. “It’s about the wider attitude of the contractors from day one,” he adds. “It is their keenness and willingness to understand what we are looking for and then respond to that in the tender return.” The pre-qualification process consists of interviews and presentations. Exemplar also likes contractors to commit to a pool of suppliers, so it can get an idea of who might form the supply chain in order to maintain quality.

The role of price in choosing a contractor varies between developers. For Exemplar it is not the most important consideration; quality matters more. Mr MacDougall says: “We try to not be driven by cost. We look at the team and track record ahead of price. We know what the market price is for the job.” He explains that he does not want contractors to cut corners because they are losing  money on a contract.

On the other hand, Mr Nicholson at Kingmoor Park says price is “probably the primary driver” in picking a contractor along with the ability to stick to schedules and good communication skills.

Life is tough for middle sized contractors servicing the medium sized developers. “There is massive polarisation between the large and small schemes; it is the squeezed  middle,” says Mr  Rawlinson. He says some contractors are now offering to guarantee a maximum price or bring funding into the deal in order to get the job. “They are trying to build a relationship by trying extra hard,” he explains.

Office statistics (see tables)

The total value of starts on site of schemes worth less than £100m across Britain fell from £4.4 billion in 2008 to £2bn in 2010, according to business intelligence provider Glenigan.

Nationally there are two offices markets - London and everywhere else. London makes up nearly 40 per cent of the starts by value in Britain for schemes worth less than £100m so far in 2011.

The market would be even more skewed towards the capital if projects worth more than £100m were included in this figure, as some of London’s prestige schemes, such as the £350 million Shard and £340m Cheesegrater, are worth larger sums. Only the West Midlands, Scotland and the South-west have total project values in triple figures.

Government figures published back in August showed that new orders for commercial schemes contracted by around 5 per cent between the first and second quarters of this year.

These falls suggest that the office market, like the rest of the economy, is far from being out ofthe woods. The possibility of a downgrade in economic growth forecasts and volatility in the Eurozone could still cause nervous developers to hold back on new schemes.

Looking ahead, Glenigan nevertheless forecasts a general upward trend in the office market to Q3 2012 and a slight tailing off thereafter.

The value of starts in 2012 is set to remain well above 2011 levels, but values for the first and second quarters of 2013 are expected to be relatively flat.

 

Funds and flexibility prove crucial

Getting funding for speculative commercial schemes remains as difficult as ever and all the more so outside the capital.

“Without debt it is very difficult to bring schemes forward, even if there is demand,” says Knight Frank research associate Oliver du
Sautoy. Sovereign wealth funds can provide backing for development, but he points out that they don’t tend to look beyond the capital.
Developers are therefore keen to sign up tenants with pre-letting agreements to help them secure the funds to build from lenders or investors. Cumbrian developer Kingmoor Park is one company which makes use of pre-lets.

The firm is masterplanning an extension of up to 2m sq ft of extra commercial space to its existing business park, but property manager Ross Nicholson says it is unlikely to be building out the scheme until tenants sign up.

“When we get to the stage where we have sufficient tenants and rental income to justify investment, then we push the button to build,” he says.

Pre-lets can give developers the opportunity to tailor the building to the tenant’s requirements. Developer Exemplar likes to sign pre-let deals and tries to keep flexibility in its designs so they can be modified to suit the occupiers.

Construction director Campbell MacDougall says financial firms in the City with trading floors may need greater floor-to-floor heights to accommodate servicing, while other tenants might want temporary back-up power.

Funding from JV partners, such as bigger developers or investment funds, is another way to finance development, says Exemplar.

 

Repairs key to smooth handovers

On large office construction projects there are often numerous snagging issues and huge amounts of damage to newly fitted surfaces.

Specialist finishing contractor Plastic Surgeon is an expert in repairs associated with the building process, and is typically called in on aproject basis, providing a project manager and a team of finishers who can be onsite for days, weeks or even months, carrying out specialist repairs throughout the site on a wide variety of damaged surfaces.

The company has been onsite at a major development in Liverpool since January 2010, with up to 10 finishers working at any one time carrying our repairs to screens and tiling, cabinets, worktops, doors, windows, laminate flooring and scratched glass.

Reducing waste to landfill, ensuring a project is delivered on time and reducing costs are just three of the benefits of repairing instead of replacing surfaces or parts of the building envelope damaged in large office construction projects.

“When the time for handover approaches there is huge pressure on site management to deal with the minor damage that inevitably occurs during construction. Cosmetic repairs help eliminate delays in handover.

“With a team of finishers onsite, multiple repairs can be completed in a very short time and very costeffectively,” says Plastic Surgeon managing director Rob Mouser.

Other office projects from Plastic Surgeon include the repair and colour matching of cut edges across 6,000 linear metres of glass reinforced concrete cladding panels on a commercial property in London, achieving landfill savings of 5.23 tonnes. The firm also repaired metal fire doors for BAM at a prestigious office development in Cardiff Bay, saving 0.78 tonnes from landfill.

Produced in collaboration with Plastic Surgeon

For more information visit here

Or email priority@plastic-surgeon.co.uk

 

Office news in brief

Refurb gets go ahead

Rockspring Property Investment Managers and Charterfield Asset Management have secured a resolution to grant planning permission for the redevelopment of Centurion House, EC3, into a new 80,000 sq ft grade A office building with retail units on the ground floor. The main construction contract is planned to start early in 2012, with delivery of the completed building targeted for Q2 2013.

Talkie deal struck

Canary Wharf Group has awarded the concrete contract for 20 Fenchurch Street – the Walkie Talkie - to PC Harrington. The undisclosed deal will see the subcontractor pour 28,000 cubic metres of concrete into the foundations on the landmark skyscraper. The Walkie Talkie is being jointly developed by Land Securities and Canary Wharf Group. CWG is managing the construction.

Office sector shrinks

Construction output in the commercial sector, including offices, fell 4.1 per cent in July compared with the same period last year. Construction Products Association economics director Noble Francis said: “It is extremely concerning to see the key commercial sector – the largest construction sector – falling 4.1 per cent and industrial factories and warehouses construction fell 20 per cent, reflecting the economic uncertainty.”

 

Roll call: Who you need to know

Campbell MacDougall, construction director, Exemplar Properties

Developer Exemplar builds offices as well as residential, retail and mixed-use schemes. Most are in central London but it also has some schemes, particularly buildings it manages or has refurbished, outside the capital. Established in 2003, its 14-strong team has worked on 28 projects. Well known schemes include Drapers Gardens in the City of London, which is now let to Blackrock Investment Management.

Simon Wilkes, head of development, Legal and General Property

Legal & General Property has £10.3 billion of funds under management. It buys, refurbishes and develops property. Its  London office projects include Bloomberg’s headquarters at Walbrook Square, the mixed use Central Saint Giles building which provides offices for  Google amongst others. Outside London, its major schemes include the regeneration of Bracknell Town Centre.

Cormac MacCrann, executive director, Canary Wharf Contractors

Canary Wharf Contractors, the construction arm of Canary Wharf Group, manages the design, procurement and construction of all the buildings and infrastructure on the Canary Wharf Estate and has completed over eight million square feet of tenant fit out. It also carries out external projects such as office scheme 20 Fenchurch Street, where it was construction manager.

Neil Thompson, development director at Great Portland Estates

Great Portland Estates has a 3.2 million sq.ft property portfolio focussed on London made up of offices and retail schemes, and an estimated development pipeline of 3.0 million sq.ft. It current office programme consists of 17 schemes covering 2.2 million sq ft. Schemes include 12/14 and 43 Fetter Lane expected to complete in July 2013.

Richard Elliott, head of construction, British Land

British Land focuses on out of town retail schemes and central London offices. It has 2.2 million sq ft of committed- and 3.5 million sq ft of prospective office developments. Projects include a new office for bank UBS at 5 Broadgate and the Leadenhall Buiding, known as the ‘Cheesegrater’, both to be completed in  2014.

 

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