UKREiiF | Grosvenor seeks partner for regional offices growth

The investor wants to form a 50:50 joint venture to grow its portfolio of refurbished workspace outside the capital to 1m sq ft. 

Speaking to Place North West at UKREiiF, Nathalie Hakim, who leads Grosvenor’s regional office strategy, said the company was “actively looking” across the country to acquire assets. 

“Our ambition for the office portfolio is to double in size to get to £400m or £500m in the next couple of years,” she said. 

Three of Grosvenor’s seven regional offices are located in Manchester; Hive, Ship Canal House, and Canada House, which it acquired from Kinrise for around £22m last year. 

At present, the investor’s Manchester assets account for around 40% of the entire 500,000 sq ft portfolio. This weighting is likely to endure through the next wave of acquisitions, Hakim said. 

As well as Manchester, Grosvenor also owns two offices in Bristol, and others in Leeds and Birmingham as part of the £200m clutch of buildings.

In total, the offices are home to 60 tenants comprising a broad range of disciplines. 

“We quite like the variety because we are not overly exposed,” Hakim said. 

In order to grow the portfolio, Grosvenor is seeking an investor partner. 

“We are looking to partner with someone on a 50:50 basis that aligns with us in terms of longevity and understands the strategy,” Hakim said. 

The type of office Grosvenor and its future partner will be looking for is core plus, “more often than not with some vacancy”, according to Hakim.  

“We’re looking for assets where there is active asset management and leasing activity to do but we also need the opportunity to improve the amenity. 

“We want our offices to be top 10 refurbishments in each of the cities. We are not interested in playing in that secondary space.” 

A focus on the E of ESG is an important element of Grosvenor’s regional office strategy and the company is aiming for at least 4.5 NABERS ratings across its portfolio, Hakim said. It is important to occupiers too.  

More than three-quarters of leasing volume since the pandemic has been in Grade A space as tenants’ expectations over the energy performance of their offices heighten, Hakim explained. 

However, Grosvenor is not looking to invest in prime, new-build offices. They may be very operationally efficient but they come with a burden of embodied carbon that refurbished offices do not. 

“I think that in the same way that operational carbon has become a metric for occupiers, it is only a matter of time before embodied carbon becomes one too,” Hakim said. 

At the moment, there is still work to do to educate the occupier market on the benefits of opting for refurbished space over new-build but a shift in mindset – and rents – is already underway, according to Hakim. 

“We are seeing examples where the gap [between rents] was 20% before but now it is not much different, especially if the office is really well located.

“I think [the discussion] is going to evolve into ‘sure, it’s a new build, and it operates really efficiently, but it’s had all this carbon in getting there,’” she said.