Bruntwood Chief Executive Chris Oglesby 2019

Oglesby: Regional city momentum has far from run its course

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Chris Oglesby has spent 20 years at the helm of Bruntwood, steering the commercial property developer and investor through recessions, city expansions, and office market fluctuations. He talks to Place North West about future opportunities for regional cities and towns, rental growth, and the importance of the green agenda.

Bruntwood is one of the largest commercial property owners in the North West, with a portfolio valued at £1.3bn and a turnover of £130m. Alongside offices, Bruntwood has 1.3m sq ft targeted at science and tech occupiers, and last year announced a £360m SciTech joint venture with L&G to expand the portfolio. Sites include Alderley Park in Cheshire, Manchester Science Corridor, Citylabs, and Circle Square.

In recent years the image of Bruntwood has shifted, from a traditional office provider, to a more flexible, serviced approach, although according to Oglesby little has materially changed in the company’s model.

“In those days of the early 90s, when we were promoting short leases, flexible terms and high levels of customer service, we were almost having to persuade businesses in Manchester of the value of that. Whereas now, the market has very much come to us. Selling our proposition is easier today than it ever has been, albeit in a more competitive environment.

“WeWork and Regus with their Spaces brand are increasing the proportion of the market looking for flexible space, which is then very much playing to our core business model.”

While the interior design of Bruntwood’s offices has changed to reflect a more modern, open plan way of working, the company has also upped the level of technology installed in all of its buildings. Oglesby is particularly interested in the results of sensors which show tenants how efficiently spaces are used, potentially demonstrating they could be occupying a smaller footprint.

Cotton Ex Reception Unveil 1

Recently refurbished space in Bruntwood’s Cotton Exchange, Liverpool

While some might think Bruntwood is doing itself out of a job by encouraging tenants to take less space, Oglesby is confident that supporting customers’ businesses will reap dividends, both in terms of commerciality and sustainability: “I believe that if we can help customers to occupy space more efficiently, then we are going to increase our market share. Each of those customers may occupy less space but, ultimately, there is a whole range of benefits. If you look at that commercial relationship with that customer, that customer could probably afford to pay you more per square foot for less space.”

Manchester’s green agenda is something that Oglesby is consistently vocal about and Bruntwood is making strides to improve on, reducing emissions and installing innovations such as Tesla batteries at its offices.

“Manchester has made the commitment to be zero carbon by 2038 and as buildings are responsible for a frightening percentage of the total carbon emissions in the city region, by getting people to occupy their buildings more efficiently, not take as much space, not have the air conditioning running all the time on a half-empty office building, we are going to contribute to that as well.”

As joint ventures as the L&G SciTech agreement push Bruntwood’s portfolio even more towards the science and healthcare sectors, are the traditional offices managed by the Bruntwood Works now seen as legacy stock?

Not so, said Oglesby: “In terms of recent years, the decision that we took to speculatively undertake office refurbishments, such as Corner Block, Neo, Union, there wasn’t anybody else undertaking that level of speculative work in the regional city centres. So, to suggest in any way that we’re not focused on that side of the business anymore – we definitely are.

“Far from Bruntwood leaving behind our core business, the split of the business is allowing us to have two teams, absolutely focused on those two aspects, and we then have a group structure that looks at the overlap. I am all for the Bruntwood Works side of the business, because the time for that has never been better.”

111 Piccadilly

Bruntwood’s next office lined up for refurbishment is 111 Piccadilly, Manchester

It’s not only the SciTech side which is set to see investment, said Oglesby: “The plan is significant. We’ve got the existing portfolio, so if we just develop that out, that’s got a GDV of £2.5bn, and then plans that we’ve got both in the existing cities in which we operate plus also new cities, could see that to grow to more than £3.5bn.

“As a result of the L&G deal, we were able to generate capital to also go towards the expansion of the Bruntwood Works business, so both sides are complementary.”

While Oglesby said the time has “never been better” for the offices division, there is an inevitable note of caution in the face of ongoing Brexit uncertainty, particularly when it comes to acquiring new stock.

“Whilst we are looking at new acquisitions, the conversations have to take account of Brexit. If anybody is expecting you to take the ‘Brexit risk’ on an deal, then we would be looking for that to be recognised in some way in the price.

“If we get a sensible Brexit solution and the market ploughs on with a kick, then we’re acquisitive, but at the moment you’ve got to have something with a very persuasive proposition to be taking it out and expect to sell without some discount.”

As central Government remains in turmoil, Oglesby is optimistic about the future for regional cities and the role they can play in the nation’s success.

“The momentum in the regional cities is something that I believe has far from run its course. Particularly, as we look at the way in which the fourth industrial revolution areas such as AI, future mobility start to develop. Which is why we’ve made such a play in science and tech areas; these cities with their stronger universities and resurgent commercial centres able to support these new industries; they are exactly the kind of places that are attractive for young, talented people to work.”

UA92 Interior

Higher education project UA92 in Trafford is backed by Bruntwood, Lancaster University and ex-footballer Gary Neville

Outside of city centres, Bruntwood has assets in the more affluent borough of Trafford, but is yet to make much of a play in other North West towns. However, Oglesby sees potential as the changing face of the High Street creates new opportunities, to provide cheaper office space, as well as more dynamic residential schemes.

“It’s got to be one of the biggest challenges in the country, of how do we re-imagine what a town is? Buying things that we don’t want as a leisure pastime isn’t necessarily the best thing for us anyway. So, re-creating town centres as places that people come together to meet to, to have experiences is everything, as we are spending more and more on experiences and less on ‘stuff’.

“I despair at the fact that we keep building anti-social boxes on greenfield sites; people have to get in their cars to go to work and, typically, go home and watch TV in the evening, and you lose that sense of community. Whereas, building back in these town centres again will re-create community. Whilst residential accommodation isn’t our thing and we have no intention of getting into being a residential developer, we’ll partner with others.”

As office rents increase in cities, particularly Manchester, the fringe towns could experience their renaissance as a home to smaller businesses, said Oglesby.

“These towns are getting hollowed out but they’ve got all sorts of interesting buildings. The fact that the values are being driven down as retail goes provides that great opportunity to provide space, for enterprise centres where you have got businesses that are starting up or that are working on tighter budgets.

“That’s going to be one of the Achilles heels of these regional cities as they become yet more expensive; we cannot find a building in Manchester city centre that we can let for less than £20 per square foot. It just isn’t possible anymore. Even if you did a very cheap refurbishment, in order to be competitive, you are looking at rents now that are so much higher than they were.”

The Plaza in Liverpool

Oglesby also pointed to the changing office climate in Liverpool, where historically rents have struggled to get higher than £16/sq ft, leading to viability challenges around bringing forward new schemes.

“In Liverpool, rents have grown very fast. Five years ago, we were reported to be selling the Plaza and we certainly thought very seriously about it. The problem that we had at the time was that the Plaza was a 10-year old refurbishment, and yet we had people offering new buildings across the road, at equivalent rents of not much more than £10/sq ft.

“At that stage, it was difficult to rationalise why we would be staying in that city, having invested so much, to then find that there were grant-led schemes effectively distorting the market. Those buildings are now largely let, the rents have moved on so that, in net effective terms, we have seen probably 75% growth. It isn’t difficult to imagine now that if you were to develop the right product in the city, that, actually, you would get the rents that you require there.”

So would he argue using grant money to support the development of offices is a bad thing?

“It’s bad for the office market if all that they do is produce vanilla offices that, otherwise, could be provided by the re-purposing of existing buildings,” Oglesby said. “Where I do think that grants can play a part is to deal with a market failure where specific investment is required. So, in certain cases, in order to supply laboratory space, with the specialist equipment that’s required, you just cannot do it otherwise. Whereas, within a city, you want to fill your existing buildings, get the life back into the city, see the rents rise as the supply and demand position works itself through, which is what’s happened in Liverpool.

“There’s nothing that frightens investors more than seeing grant-led development undermining the future rental prospects of a city.”

While he’s optimistic about the future of the regions, ensuring good connectivity to the capital remains essential, as well as boosting transport between Northern cities.

“I’m encouraged in some ways that we’re getting the right kind of noises from Government, around investment in transport, East to West and the North particularly, but with that, we need better commuter travel as well. However I despair that that could be at the cost of HS2 because I feel we need both.

“Connectivity to London is so important as we are seeing more and more businesses move out of London. They need a presence there, and the ability for their regional offices to work with their London office is a key aspect for them to be more comfortable to move more jobs up here. They won’t move those jobs if moving between London and the regions is difficult.

“I just feel that we appear to be losing the argument about HS2, and there are too many people sitting there saying ‘well I quite enjoy having my breakfast and reading the paper on the train thanks very much’, without really thinking about the broader economic implications of HS2 to the regions.”

North Campus Feb 2019 2

An indicative aerial image of the North Campus site, now known as ID Manchester

While there’s a high level of construction ongoing in Manchester, there are still major opportunities on the horizon in the city core, such as the University of Manchester’s search for a development partner for the former North Campus, rebranded ID Manchester. With a 3.5m sq ft office-led scheme proposed, targeted at science and tech occupiers, Bruntwood is known to be in the running, although while promoting the project at MIPIM last month the University insisted the competition was still “wide open”.

Oglesby confirmed “we definitely will be looking at it. It’s a very exciting proposition, and something which has been on the horizon for 10 years.”

Retention of the listed Sackville Building forms part of the current ID masterplan, while the future of the Brutalist and Modernist properties on the campus remains uncertain, much to the chagrin of heritage groups such as the Twentieth Century Society.

Ultimately, any chosen developer would decide which buildings are kept. If it was Bruntwood, would the mid-century properties be safe?

“Working with the fabric of existing city as opposed to starting with a greenfield site is so much more interesting and provides so much more opportunity to create an interesting place,” Oglesby said. “So whilst I can’t comment at this stage on the masterplan overall, and how much you would save and how much you wouldn’t, the fact that there are some fabulous existing buildings there make that such a more interesting place than if it was just a flat site.”

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Above, Oglesy says that at the time of being reported to be selling Liverpool’s Plaza, “it was difficult to rationalise why we would be staying in that city”.

However, in a Liverpool Echo article on the matter in 2016 his head of property was quoted as saying “”We remain fully committed to Liverpool city region and see this as providing an opportunity to invest further in the future.”
https://www.liverpoolecho.co.uk/news/business/bruntwood-confirms-liverpool-plaza-office-10986907.amp

So which is it/was it?

I can’t help but notice our council still needs to fund new development despite spending years playing to the tune set by various developers.

Bruntwood are developing new buildings in Manchester, not Liverpool. A job no doubt made far easier by big occupiers also not having too many big city relocation choices.

While various venture funds have recently “invested” in our city’s few remaining office blocks, following companies’ lack of options while they remain here, I wonder if taking on a building as large as the Plaza may still be considered quite the risk in our hollowed out commercial economy, despite that lack of spare space.

If any developer has an imperative to improve our city’s prospects then I’m pleased, but as a city we need a massive reversal of what has gone before, with millions of square feet of new (replaced) space, and high profile big relocations, to make our city truly investable again. Until that happens, hopefully developers will be stuck with the assets they’ve got for the foreseeable, regardless of headline rent increases. That way they too have every incentive to want the same.

By Mike

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