Business parks to offer all-in services for occupiers

Copyright: David Lawson/Finacial Times April 1998

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Cleaning toilets and weeding flower beds do not rate highly in the priorities of where companies locate. Such mundane tasks could  hit the agendas of board meetings very soon, however, as part of a revolution in the way buildings are provided.

  This has nothing to do with obscure new regulations slipped into European law but a lot to do with  the way businesses are run. Toilet cleaning, gardening, catering, security,  water supplies and telephone links are part of a huge range  of services which  keep any organisation going. And they take up valuable time and resources better devoted to core activities.

 The last government kick-started the idea that landlords should do more than let a building then sit back and collect the rent. The Private Finance Initiative suggested a package of accommodation and services in exchange for an all-in charge.

  While the industry pondered such a momentous change, the UK's biggest business park developer jumped into action. 'It seemed perfectly suited to our kind of activity,' says Patrick Deigman, chief executive of Arlington.

 Many parks already provide a mix of tenures, ranging from large freeholds through conventional leaseholds to 'nursery' units for start-up firms.  Latest moves have seen Regus, the fast-growing serviced office company, expanding onto business parks. Deigman wants to offer something between Regus's  all-in accommodation and full PFI-style packages.

  'Occupiers want to know how much premises cost,' says Deigman. 'That does not just mean rents but all the services. An insurance company does not  want to wait until the end of the year when all the bills have come in to see whether a salesman is getting good value out of his 20 sq ft.'

  Wrapping up all these services with rents in a quarterly package gives a more immediate picture. Tenure would be by licence rather than lease, perhaps on a 5,000 sq ft building agreed for 10 years.

  This is a step up from the  deals already being worked out by Arlington, which involve using bulk purchasing power to buy tenants utilities like water and electricity. Telephone services are also offered at discount rates, providing extra benefits like networking and links to staff homes. The firm has moved deeply enough into this area to set up a new division run by  a specialist head-hunted from a top facilities management firm.

  If these package deals take off, they could spread like wildfire through the property industry as tenants demand a similar approach. The main stumbling block is funding. Investors are comfortable with  conventional long leases and  regular rent reviews. They  could shy away from short-term deals based on cashflow valuations.

  But  Andy Martin of Arlington's property advisers, Strutt & Parker, expects  views to change as tenants see the new approach in action. 'Real estate investment trusts work this way in the US,' he said. 'Banks in this country would leap at the chance of structuring deals based on good covenants and  fixed-rate debt.'

  The package would resemble those set up for leasing other asset classes such as aircraft. 'We have had some very big inquiries and I would not be surprised to see a few examples in the next few months,' said Martin.

  Some sceptics remain unconvinced. 'Landlords do not have to provide these packages to get tenants in a buoyant market,' says Tony Fisher, regional director at Chesterton. But he accepts that such moves will eventually emerge as a new kind of property service.

  Deigman harbours no such doubts. 'This is not being driven by landlords but by tenants looking for a new approach to premises,' he says. Investors are also fascinated by the PFI approach, but  put off by the risk of experimenting with large city-centre buildings, he says. Business parks have a wide enough variety of premises to test the concept.

  Progress may depend as much on Arlington's own future, however. Parent company British Aerospace is considering floating off the company or selling out. But if Deigman is still in charge this time next year, expect what he calls a 'new chapter in business parks' to open with some  revolutionary changes.