Demand dwindles for giant office blocks

Copyright: David Lawson/Financial Times - first published 1996

A shiver went round the property industry as the government issued planning guidelines this summer which made plain the commitment to restrict development outside town centres. But it was more a feeling of excitement than despair. 'It is all much too late,' says Simon Ives, of surveyors Chesterton. Councils around the UK have already designated enough land for office parks to last them for the rest of the decade. Where shortages do occur, it will merely push up the value of existing sites rather than force big businesses back into centres.

The problem is that most towns cannot accommodate large office users looking for modern buildings. Well-located sites are like gold dust and the surplus of vacant space built in the boom has dwindled to vanishing point. Little new development is taking place because funding is still scarce. In any case, many businesses no longer want to be in centres. They have grown used to the airy spaces and glossy buildings that have sprung up on business parks over the last decade. 'This will continue to make life difficult for town centres,' says Ives. 'The professions, banks and a number of institutions still prefer central locations, but those less traditional - and possibly more pragmatic - see substantial advantage in going out of town.'

Some classic examples have recently emerged in the economic cauldron west of London, where electronics companies have renewed the spectacular growth rate of the Eighties. Microsoft has bought more than 30acres on the Thames Valley Business Park from Argent. This gives space for a new 250,000 sq ft headquarters plus elbow room for twice that amount in future expansion. Novell has matched its fierce rival by spending more than 20 million pounds on a site at Arlington's business park in Bracknell to replace its town centre headquarters.

The trend away from town centres a decade ago was linked to costs. Rents were soaring; so were local authority rates. Today, rents are often higher outside towns than in the centre across much of the country. Even in London the gap has narrowed. Latest lettings on Stockley Park near Heathrow are more than ?26 a sq ft. That is still well below the £45 Richard Ellis is quoting as top rents in the West End but higher than the depressed mid-town area of Holborn.

Location decisions nowadays revolve less around headline costs, however. Companies are more concerned about getting the right quality space in surroundings that will attract, and hold, staff. That is almost always away from town centres. Notable exceptions such as Brindleyplace, Birmingham, and the potential GMEX redevelopment in Manchester merely accentuate the general rule. Even London Docklands no longer has 200,000 sq ft blocks available at the drop of a hat - at least until Canary Wharf gets into a new development chapter.

Investors are gradually growing disenchanted with city centres and just not providing the space for businesses to shop around. But that is only a reflection of what is happening among occupiers, according to Angus McIntosh, head of research at Richard Ellis. He points out that big question marks hang over the future of offices as tenants reduce space demands. New technology brought the first wave of staff cuts. Outsourcing of catering, cleaning, transport and other non-core services will streamline organisations even more. The rump left is likely to use space more intensively as techniques such as hot-desking and homeworking are introduced.

So there are likely to be fewer large corporate buildings in future. Those that are built will be commissioned by companies rather than picked off the shelf - partly because businesses are now more sophisticated in their demands but also through a lack of funding for speculative development. These buildings are also more likely to be on parks where planning permission has already been granted. The exception could be in large redundant blocks in town centres where renovation is possible to a high standard. These have the crucial advantage of generous car parking provisions which were set back in the days when no-one had heard of the ozone layer and global warming. Today, an occupier would be lucky to get even the much-reduced number provided in local plans.

Instead, there are numerous examples of councils not only restricting parking below their own standards but demanding payment for the 'phantom' spaces as a contribution to local facilities. This sends out bad vibrations to companies already smarting from tighter restrictions on access. This is compounding rather than solving town centre problems, says Ives. He cites Leeds, which insists on only one space for approximately 2,000 sq ft of lettable accommodation - roughly one for every 16 to 20 people.

'One sympathises with their desire to reduce pollution but there is simply no alternative to the car,' he says. The trains were seen as unreliable and the old buses clanking around the city felt to produce far more noise and fumes than any cars.

Even planned improvements like park-and-ride would not cope satisfy the typical business executive who faces a wet February morning at a bus stop rather than the warmth of a BMW. Set this against the generous parking provisions already granted to business parks and it seems inevitable that companies will look outside town centres for new homes. This will polarise property values in favour of flexible, modern space which is easily accessible by car and leave behind those in marginal locations.

The change in meaning of 'marginal' from city fringe to city centre could have a traumatic impact on many areas. Ironically, this is the very reason why the government has come down so heavily on greenfield development. It was ostensibly aimed at preventing shopping centres draining the life from town centres. But the 'sequential' test - involving looking at all central options before gradually working outwards - also applies to other buildings. The problem is companies looking for large new property have an escape route already prepared. Blocking that will require a lot more involvement in raising standards in city centres. Even then, the space may not be available to meet their wishes.