Oracle move boosts UK regional business park prospects

Copyright: David Lawson/Financial Times April 1998

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A shiver of excitement ran through the Midlands  when news leaked out that Oracle, one of the world's biggest software companies, is considering building  a major office centre just outside Birmingham.

 It is  not the fact that a big company has wandered into the provinces. Every major town in the UK has at least one  international name, and technology plants have popped up  on sites ranging from Strathclyde to the Welsh valleys. But this development - if it comes off - will show that a top-flight tenant can be attracted out of the South-east without resorting to an armoury of grants or political arm-twisting.

  This coming-of-age is not before time. There have been business parks in the regions ever since planning rules changed  in the Eighties. In fact, the West Midlands has almost as much office space  - around 3m sq ft - as towns in the Thames Valley, according to Applied Property Research. Bristol alone has more than 1m sq ft.

  The difference emerges when other  kinds of business park space are included. The South-east has a total of almost 30m sq ft compared with the Midlands' 7.6m sq ft, according to  Tim Heatley, head of business parks at Grimley International.  This is partly because the regions lag a year or two behind London during economic growth cycles but can collapse earlier in recession. By the time parks had become established in the regions, the early-Nineties crash meant development almost ground to a halt.

   'There are now some exciting prospects around major centres like  Edinburgh, Birmingham, Manchester, Nottingham and Leeds, as tenants look for a quality of space they cannot find in town centres,' says Chris Hiatt of Jones Lang Wootton. But the momentum could take a couple of years to translate into growth as nervous investors wait for pre-lets rather than anticipate demand.

  Arlington, the country's biggest park developer, has kept up  momentum in towns like Gloucester and Oxford, working up  old airfields and car sites passed on by  parent company British Aerospace. A trickle of lettings also justified continued speculative development. Now the firm has plans for new schemes including one in south Manchester and more than 1m sq ft on the M8 outside Glasgow.

  They all have special reasons for optimism. The Thames Valley grew off the back of proximity to Heathrow and a skilled labour force. Manchester, Birmingham and the Central Valley of Scotland are now  offering similar access to international airports and staff.

 Blythe Valley, a 100-acre site on the M42, has taken 10 years to get off the ground, But if the partnership between the local council and developers Kingspark and British Land can attract the 2,000 jobs Oracle is proposing, it will underline the claim that the Midlands can compete.

  These regional centres will not have  to rely  on  IT companies fleeing northwards, however, says Nick Williams of DTZ Debenham Thorpe's Birmingham office. He points out that finance groups are growing organically in the regions and demanding the  quality and surroundings only available on these parks.

  An explosion in call centres has added another layer of demand, as banks, retailers and public utilities spin these labour-hungry operations out to cheaper locations where they can pick up regional employment grants. Akeler showed the way by attracting London Electricity to Doxford Park in Sunderland almost five years ago, and now also houses Barclays, One 2 One, Royal and Sun Alliance and Post Office centres. The park has created more jobs than those lost by the shipyards it replaced.

 Tony Fisher of property consultant Chesterton is  less enthused than most about the amount of development taking place in the regions but his firm is looking for   up to six call centres of 120,000 sq ft each for BT. 'This kind of expansion will drive the market forward and help rents move up,' he says.

 That, in turn, will draw in funding and stimulate further development. Investors have already begun to recognize the potential for growth. Guardian bought the latest phase of Arlington's Birmingham Park for 8.3m pounds last year while Abbey Life spent around 15m funding two speculative buildings on AMEC's Cheadle Royal park in south Manchester. Friends Provident also ploughed 11m into Edinburgh Business Park.

 'Rental growth is strongest in the South-east, so that is where funding has been concentrated. But this will flow faster into the regions in future,' says Mike Cutteridge, investment director at DTZ Debenham Thorpe.

  The one fear must be that the economy will dip again  just as the regions get their act together. This time around, however, there could be enough strength to maintain momentum.