Cash-rich Kier Property eyes regional development opportunities
The developer has £140m to spend in the next year on major development projects around the country, with Manchester and the North West among its targets.
The development division of listed Kier Group is tasked by the board with delivering 15% return on capital employed on development activity. Of the £200m annual budget allocated for Kier Property by the group for the financial year to the end of June 2018, £60m has already been committed.
In Manchester, activity includes two prominent city centre office schemes; Eleven York Street and 81 Fountain Street, which have a combined value of £65m. Fountain Street was recently sold to Aprirose and will provide space to Kier Group’s 250-strong shared service centre, which will relocate from the Midlands in May 2017. Eleven York Street was purchased from Aberdeen Asset Management in November 2016 and will consist of 85,000 sq ft of office space. Demolition is expected in the autumn.
Speaking to Place North West, Tom Gilman and James Nicholson of Kier Property North said there was a broad range of target sectors in their sights: residential, offices, industrial, out-of-town retail, leisure and student accommodation.
Where regional independent developers have identified a site, and know the local market is ready but have difficulty finding personnel to manage development or equity to reach viability, Gilman says Kier Property can come in and successfully deliver the project with partners.
Kier Property has 12 staff in the Manchester office out of 80 nationally, other offices are in London, Leeds, Newcastle and Nottingham. The development arm’s budget of £200m a year is to develop across all asset classes. At a group level, Kier throws off cash which can be recycled in developments. In the six months to the end of December, operating profit was up 4% to £56.5m. In addition, Kier Property has relationships with external lenders including Investec, Deutsche Hypo, Santander, RBS, and HSBC, taking the total pot to £500m a year.
The current development pipeline has a gross development value of more than £1.1bn, of which 80% is outside London.
In Liverpool, Kier Property’s Northern team, in partnership with developer CTP, was selected by Liverpool City Council in February to deliver Pall Mall, an office-led development on three acres of the commercial district.
Gilman and Nicholson said winning the Pall Mall development contest probably saw it reach capacity in Liverpool until the five-year project is delivered.
The joint venture and public sector partnership approach used at Pall Mall is one it has employed elsewhere.
Among its ongoing development partners are Staffordshire County Council, Manchester-based Bruntwood, with whom Kier developed 3 Sovereign Square offices in Leeds, Maple Grove, Premier Inn and FORE.
Around the country Kier Property has around 20 live schemes either on site or in the planning pipeline.
The Trade City and Logistics City brands are also looking for sites to operate and develop on a speculative basis and offer both leasehold and freehold to occupiers.
Kier Property operates as a trader developer, selling projects on completion to return cash to the group and partners, although it tends to hold student accommodation for three to five years until rental income stabilises.