Author: MT Checked: Version: 0.01 Date:

Author: MT Checked: Version: 0.01 Date: 14.12.15 Nottingham Office Market Review 2015

CONTENTS 1. Introduction... 1 2. Baseline Information... 2 3. The Nottingham Office Market... 3 4. Current Demand... 4 5. Supply of Development Sites... 5 6. Way Forward... 7 APPENDIX 1 Office Market Site Location APPENDIX 2 Market Appeal of Sites

Office Market Review NRL 2015 1. Introduction Earlier this year Nottingham Regeneration Limited (NRL) was asked by Nottingham City Council to review the Nottingham office market and examine the likely market appeal of key development sites. NRL was specifically requested to undertake this work rather than a traditional office agent due to the company s independence thereby avoiding any potential conflicts of interest with landowners and developers. Nottingham City Council were specifically interested to understand the likely attractiveness of the Eastside Island/Creative Quarter Site in order to help shape their planning policies and any future interventions and help address the period lack of Grade A office accommodation. 1.1 Purpose of the Report Nottingham has for several years sought to promote the development and occupation of new office development within the City. The office sector having been identified as a potential economic growth sector. Several key development sites have had longstanding proposals in formal planning documents and planning consents secured for new office developments. To date however, notwithstanding the high profile development of Trinity House to house EOn alongside the Guildhall, there has been no new large scale office development in the City Centre for virtually a decade. As such Nottingham City Council is seeking to increase its understanding of the current office market, identifying potential shortfalls and review the commercial market potential of identified sites. It is considered that such information is essential to help shape future interventions and policy with respect to the office market in Nottingham. 1

Baseline Information An extensive and comprehensive review of the City s Office stock was undertaken in 2010 as a result of a collaboration of members of the Nottingham Office Forum (comprising of the principal commercial property agents and specialist investment and regeneration agencies). This base analysis has been revised annually since 2010 with take-up, availability and deals undertaken such that it is now possible to assess relative performance and emerging trends. This report leans heavily upon that research but has been supplemented by individual interviews with agents and by empirical observations. The total stock of offices in the City Centre is estimated at 6,900,000 sq.ft. In addition there is a further 3,340,000 sq.ft of offices located in out of town business parks throughout Greater Nottingham and an estimated 2,700,000 sq.ft of pipeline proposals (these are reviewed comprehensively elsewhere in this report to assess their likelihood of being developed). Take up of office stock in Nottingham varies on a yearly basis but it averages at between 200-250,000ft² per annum in the City Centre with an additional 230,000ft² in out of town locations. To date, there is currently 800,000ft² of vacant office floor space available in the City Centre. The vast majority of this vacant stock, 500,000ft², is classed as Grade C and is of poor quality. A further 500,000ft² of floor space is currently available in out of town locations. By far the greatest single component of take up is for property below 5,000ft² in size. Over 80% of all take up is for offices below 5,000ft². On average, a single deal each year for the last decade of between 60-100,000ft² accounts for the remainder of take-up.

Office Market Review NRL 2015 2. The Nottingham Office Market The Nottingham office market is considered by the agents to possess a good mixture of occupiers operating in a wide variety of different sectors finance, professional, computing, research and the public sector. These occupier groups are located in both out of centre locations (e.g. Boots) and within the City Centre (EOn). With just under 7,000,000ft² of offices in the City Centre, Nottingham is one of the smallest office concentrations of all England s Core Cities but this can be explained by many occupiers preferring to occupy fringe locations with easier access to the motorway network and other public highways. Future office sector employment is predicted to grow as a result of a number of key factors including: An existing concentration of resilient sectors (banking, insurance, public sector) A high concentration of high growth, knowledge sectors (telecoms, technology, life sciences, media) A strong presence of higher education institutions (University of Nottingham, NTU) A large and growing working age population The relative affordability of Nottingham as a location not just for business but also as a place for a skilled workforce to live. 6million people living within a 30 mile radius of the City Centre. Easy access to an international airport, London and the West Midlands and within the City Centre one of the most extensive public transport networks of all the core cities including the recently extended NET Tram system. Recent research undertaken by Nathaniel Lichfield and Partners for the Greater Nottinghamshire local authorities in 2014/15 has endorsed the significant growth potential of the office market in Nottingham. Based upon the presence of existing employment growth sectors this research, based upon data provided by Experian, concluded that there could be the need for a further 2,638,000ft² of new office floor space between 2011-2028. This equates to approximately 155,000ft² per annum. Prime headline rents in Nottingham are currently at 20/ft² which has remained the level for the past 5 years. Secondary rents rose to 11/ft² with rental levels for quality refurbished stock currently 17-18/ft². A key challenge for the sector is that build costs are rising by 15% per annum meaning a rental of 20-22/ft² is required in order to break even. 3

3. Current Demand It was stated earlier that current take up of floor space is predominantly in relatively small lot sizes of up to 5,000ft². Historically most demand is for companies employing 50 people or less although virtually every year there is a major transaction involving a significantly larger quantity of accommodation (eg. in 2015 Parexel took 62,000ft² albeit in an existing building). The Nottingham office market has been significantly affected by the economic recession in 2007/8. Occupier demand significantly weakened and there was a major fall in commercial property value. As such new office development and the refurbishment of a diminishing pot of quality second hand space has been very limited. In addition it is estimated that 500,000ft² of poor quality office accommodation has been removed from the market for conversion into student accommodation. Values in Nottingham are not yet at a price that is regarded as appropriate for developers/investors to justify developing speculative development, however, recent increases in values are now approaching the position where such development could be considered, as is the case in other core cities such as; Birmingham, Leeds and Manchester, where the rents are marginally higher but build costs are the same. Due to the relatively small regional office market (Birmingham by occupancy has over 40millionft² of office stock) and lack of recently completed and available office stock many potential occupiers and their advisors do not consider Nottingham as a potential location. It is however understood that the City has been considered for new occupiers requiring a range of property sizes (including 10,000ft², 40,000ft² and 50,000ft²). Such occupiers will look at all towns and cities in the region including Derby, Leicester and Sheffield due to the well-developed transport networks. It is interesting that the Sheffield headline rents have now breached the 23/ft² which may well stimulate speculative development which would represent a major threat to Nottingham in terms of new inward investment. Nottingham is considered well placed to kick start new office development. Improvements to the transport network (NET, Train, MML) are seen as positives by major occupiers and Nottingham remains highly attractive to public sector occupiers and for back-of-house/call centre and data processing businesses due to the large number of student/graduates and the existing cluster of businesses engaged in such work. More over a significant number of lease events fall in the next 5 years (15 year lease breaks from construction) in the out of town business parks. Such occupiers, in particular, those engaged in public sector activities could be attracted into the City Centre and it is estimated that this could amount to some 200,000ft². Notwithstanding the key positive factors offered by the City, the attractiveness of Nottingham as an office location is also threatened by a number of issues. The lack of a clear focus/cbd is a major negative feature. Developers and occupiers require certainty and confidence, the Nottingham market is fragmented and there are occasions when there is no clarity as to the promotional drive. Improvements to strategic transportation infrastructure, although welcomed, can also be perceived as a negative factor. If access is improved to other cities where investment is more profitable why would a developer build in Nottingham when the business could be served from elsewhere. WPPL is also considered by some occupiers to add to the cost of occupation particularly where their business requires extensive car parking and they are relatively footloose.

Office Market Review NRL 2015 4. Supply of Development Sites Notwithstanding the nature of the demand identified above it remains the case Nottingham is able to attract large scale users virtually every year with a major user every 5 years (Capital One, HMRC, Eon, Experian, Domestic and General). Given this situation a number of key sites have been identified by the LPA (NCC) and by the market as potential locations for new office development. Nottingham is unique compared to other core cities in that it does not have a well-defined central business district which can grow to accommodate new uses. Currently offices are located not only in out of town locations such as Nottingham Business Park and NG2 but also on Maid Marian Way, Market Square, Upper Parliament Street, Ropewalk, Cumberland Place, Eastside and adjacent to the station. For several years NCC has sought to provide development of a CBD adjacent to the station following the likes of Capital One, Shoosmiths, BWB, the Courts/legal practices and most recently with its occupation of Loxley House. Various development sites have been identified alongside the station and planning permissions secured but no new development has proceeded to take place. Elsewhere a number of other initiatives have progressed to promote office development in a wide variety of locations. Appendix 2 identifies the key sites identified by NCC in its recent LAPP Office Supply allocations policy document. This has been supported by other market intelligence, new planning permissions and an understanding of potential future aspirations of land owners. It can be seen that from the development pipeline there are planning consents for circa 2,700,000 sq.ft of new office accommodation. Many of these permissions are time limited and have lapsed but this provides an indication of potential acquisitions. Such proposals have been reviewed from a commercial market perspective to understand their likely implementation and market appeal. Uncertainty and market failure from 2007 onwards has until recently not ascertained the creation of new office development in Nottingham but on review suggests that less than half of the schemes are likely to come forward in the short to medium term due to site constraints, access, ownership or alternative uses providing greater returns. We estimate that in the next 10 years around 800,000ft² of new office floor space is likely to be developed. Such schemes are those located in the traditional office market areas such as the Guildhall, Southside and at NG2 as well as the more specialist type (B1/Campus Style) of accommodation that could come forward on the Island Site/BioCity i.e.: Station Street c.100,000ft² Arkwright Street c.80,000ft² Maid Marian Way c.60,000ft² London Road Island c.60,000ft² Guildhall c.40,000ft² Unity Square c.100,000ft² BioCity c.60,000ft² NG2 c.100,000ft² Eastside Island/Creative Quarter Site c.200,000ft² The Island site differs from those in the traditional core areas in that it is somewhat remote from the City Centre core. It does however benefit from a new single owner, planned transport changes that will strengthen the links to the City Centre, a cluster of specialist biotech firms and a presence of existing office occupiers on its fringe. Moreover, it is identified as a potential source for priority regeneration funding from D2N2, however, crucially it is the sheer size of the Eastside Island site 5

that represents its greatest asset. The major inward investors that may look at Nottingham for over 100-200,000ft² could not be accommodated elsewhere in the City alongside an existing cluster of bioscience occupiers and spin out business. Such attributes make the Island Site a necessary and essential part of a balanced portfolio of office opportunities in the City such that it s long term prospects should be considered favourable as part of an overall mixed use development.

Office Market Review NRL 2015 5. Way Forward Based upon research and analysis there is clear evidence of a shortage of quality office accommodation both in terms of new build and refurbished stock which is emphasised by much of the sub-standard stock being converted to other uses, most notably student housing. There are significant development opportunities within the City Centre and its environs, for new office developments that are capable of meeting future needs. It is generally regarded that Nottingham s strong economic growth outlook provides opportunities for the City to exploit the future uplift in prime values and for this to support future new office development. In order to realise this very real potential, Nottingham and its partners are advised to show strong leadership in terms of its incentives policy (rental agreements/pre-lets) as well as direct development (vis a vis BioCity) using its prudential borrowing powers to bring forward its own sites including Crocus Place to help kick start the market. It is advised to create space at the sub 5,000ft² level that will in turn release space elsewhere in the market and act as a major catalyst to growth. Nottingham should also pursue a more balanced approach towards investment and development of the office market. Certainly it is important to continue to seek to attract new inward investment but there should be alongside a policy of providing space and facilitating the retention and growth of indigenous firms which can be more cost effective at times. Providing confidence to local owners is also vital, NCC should maintain its faith in the Canal Quarter (formerly Southside) area adjacent to the station for the long term as developers and occupiers require certainty and confidence which must be provided by the public sector. Clearly not all occupiers will want to be located in the same place but cluster is successful and encourages others to concentrate their investment decisions. Nottingham needs a range of sites capable of meeting the specific and vague needs of a variety of occupiers; a balanced portfolio of opportunities is a pre-requisite or the City will fail to meet the needs of existing and future occupiers. The Island site is well capable of meeting large scale, campus style uses including those linked to the BioScience sector. Such a unique offer is not available elsewhere and should therefore be encouraged as part of the overall mix of uses. 7

APPENDIX 1 Office Market Site Locations

Office Market Review NRL 2015 APPENDIX 2 Market Appeal of Sites LAPP Site Name Sq. M Product Type Market Appeal PA71 Sheriffs Way, Sovereign House 21,000 CBD PA70 Queens Road 10,000 CBD PA74 Arkwright Street East 7,500 CBD PA68 Island Site 54,150 Campus/B1 PA73 Meadows Way 7,000 CBD PA77 Eastcroft 2,500 Nil PA61 Royal Quarter 15,000 CBD Central Library 13,940 CBD PA54 Boots 4,500 Campus/B1 PA52 Nottm Science Park 9,000 Campus/B1 PA47 Medi Park - Abby Street 5,000 nil PA02 Blenheim Way 2,500 OO-linked B2 PA16 Nottingham Business Park - North 7,500 OO-linked PA48 Queens - Adjacent Portal 1,500 Campus/B1 PA49 / PA50 NG2 West and South 8,100 Campus PA53 Electric Avenue 4,400 Campus PA63 Brook Street West 2,500 nil-housing PA64 Sneinton Market 2,500 B1 PA65 Bus Depot 2,500 nil PA66 Maid Marian Way - College Site 7,750 CBD PA76 Hartwells 14,500 nil PA78 South of Eastcroft Depot 1,000 nil PA81 Waterside Meadow Lane 1,500 B1 PA82 Waterside Freeth Street 3,200 B1 PA72 Traffic Street 4,550 Other sites 6,000? PA69 Station Street / Carrington St 9,000 CBD Trivett Square 6,700 CBD Former Petrol station London Road 2,500 OO-linked service Bio-city 6,700 B1 Rufford Hall, Tennis Street 1,610 OO-linked service 56 Hounds Gate 3,372 OO-CBD 9-11 Beck Street 285 OO-B1 7 Woolpack Lane 218 OO-B1 371-373 Haydn Road 260 OO-B2 250,235