Earlier this month we announced that Sage, the software company with an £8bn market value, had agreed leases on 203,728 sq ft, across two adjacent buildings, at Cobalt Business Park in Newcastle, representing the largest ever letting in the North East office market.
It was the latest milestone of our successful value-add office strategy, during which, on behalf of three different funds, we have acquired, refurbished and leased some 3 million sq ft of office space in London, Manchester, Birmingham, Leeds, Newcastle, Glasgow and Edinburgh. Furthermore, other than the building now let to Sage, we have sold all of our office investments over recent years for a combined c.£1bn, generating significantly above the target returns for our investors.
Moorfield’s team has been successfully investing in the UK, across a range of diverse asset classes, going back 23 years to 1996. This extensive track record and broad expertise has allowed us to originate, both on and off market, a range of commercial office assets that includes distressed or under managed buildings, those requiring significant capex, or those with upcoming material lease expires.
Following acquisition, we have undertaken substantial refurbishment programmes, often on vacant or near vacant buildings, then secured strong new occupational covenants on investment grade long-term leases before disposing of the assets on completion of the business plan at suitably lower yields.
Underpinning this successful strategy has been the ability to identify those sub-markets in major conurbations where there has been a significant undersupply of flexible, Grade-A office space and/or where there has been significant infrastructure investment underway, such as Crossrail, to improve the area’s desirability thereby driving up both rental growth and capital values.
Prior to capital expenditure we take the time to understand what the occupational demand is asking for. We then take a very active and engaged approach during the refurbishment stage to take advantage of our long-dated experience of developing and operating in the different, more operationally intensive, assets classes such as in the Build-to-Rent, Purpose Built Student Accommodation, Senior Living or Hotel sectors to benefit our occupiers with a more consumer facing approach. Our most recent objective has been to meet the emerging needs of occupiers for greater space adaptability, higher productivity, quality design, buildings with character, engaged occupational services and employee satisfaction. Hence our buildings have been designed to appeal to a broad range of occupiers, offering extensive amenities and spaces for meeting as well as shared work environments.
A good and recent example of our approach has been in Glasgow, where in 2017 we successfully repositioned three substantial office buildings at Atlantic Quay after identifying a lack of large floor plates in the area. We refurbished and relet 80,000 sq ft to the Department of Works and Pensions on a 15 year lease and 82,000 sq ft to Scottish Courts and Tribunal Services for a term of 25 years. We not only completed the Grade A refurbishment of both buildings but also undertook substantial grade B fit out works upon behalf of both occupiers.
At Salisbury House, Finsbury Circus, adjacent to Crossrail and comprising of 220,000 sq ft of offices with A3 retail and leisure at ground floor level on London wall, we significantly improved the reception areas bringing in natural light with contemporary finishes, refurbished the offices to improve the net lettable office space and created modern workspaces, as well as introducing amenities to the building and concierge services to look after the 60 occupiers. Major leasing deals included securing the law firm Druces on a 10 year lease and FBN Bank on a 15 year lease. This investment was sold in a portfolio that included, amongst other assets; Brindleyplace in Birmingham, Skypark in Glasgow, Pinnacle in Leeds and Towers business park near Manchester.
Other particularly successful office investments include those we developed at Quartermile in Edinburgh (203,000 sq ft) and The Shipping Building in Hayes, London (98,400 sq ft).
Our investment strategy at Moorfield is underpinned by a focus on the shifting societal trends and in recent times we have been focused more towards the needs-based and demographically-led ‘alternatives’ sectors. We have been early investors, perhaps you might even say pioneering, in Student Accommodation (since 1997), Senior Living (since 2008 through Audley, the leading retirement village developer and operator) and in Build to Rent (since 2012). We think that these sectors, and others outside the ‘traditional’ asset classes, currently offer more opportunity for growth but that they are also more defensive, which is especially relevant as the economic and political outlook is so uncertain at the moment.