ISSUE 1 | SUMMER 14
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THE CHANGING FACE OF OUR HIGH STREETS PAGE 4
www.fgburnett.co.uk IN THIS EDITION:
P2 NOTE FROM THE MD, ANGUS MacCUISH
P3 BUILDING CONSULTANCY
P6 A TALE OF TWO CITIES
P8 RENT REVIEW
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Message from our MD... FG Burnett has once again enjoyed a successful year, and at the heart of this remains our passion and commitment to our people. A number of new faces have joined the FG Burnett team in 2013/2014 and we are delighted to say that the contribution they are all making continues to drive the business forward. One of our proudest achievements as a company is our programme of continuous development and mentoring, which in 2013 saw two staff members, who joined FG Burnett as graduates, rise through the ranks to be appointed as Directors - well done to both Dan Smith and Jim Johnstone for this impressive achievement. Continuing in this vein, we have in the last year appointed four graduates to the business across both of our offices. Graeme Miller and Andrew Brass have joined our Agency Team, while Iona Foubister and Emilio De Marco join our Building Consultancy department. Iona and Graeme are based in our Aberdeen office while Andrew and Emilio are based in Glasgow. All of our graduates are supported in their APC programme to achieve chartered status and we look forward to them mirroring Dan and Jim’s success in the future. In May we were delighted to announce another round of promotions to the FG Burnett Team:
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Ross Sinclair has now been appointed as Director, strengthening our Industrial sales, lettings, asset management and development sectors in the Central Belt. Since Ross’ arrival in 2011, the Glasgow Agency has seen industrial stock levels rise from 500,000 sq ft to 2 million sq ft. Sara Mathieson is a central figure in our Aberdeen agency team, where like Ross, she also predominantly specialises in Industrial properties, her hard work and commitment has been rewarded with her promotion from Surveyor to Senior Surveyor. Our Building Consultancy Department continues to grow and is strengthened by the recent promotion of Stuart Fyvie. Stuart joined FG Burnett in 2011 as a Building Surveyor and over the years has been promoted to firstly Senior Building Surveyor, and now to Associate. It is important to remember that our professional teams would not be able to carry out the work they do without the backup they receive every day from our support staff. Therefore we were happy to announce the promotion of Sylvia Clement to Office Manager in recognition of all her hard work. It is a credit to every single person in FG Burnett that we have such success, not only in staff retention but also in staff development. This would not be possible without the commitment of every person in the business who works towards not only the ongoing growth and continuous improvement of FG Burnett but also to ensure personal development is an achievable target for all.
All that is left for me to say is Thank You. Thank you to all of our clients, colleagues across the industry and most importantly to our staff, we look forward to our 2014 / 2015 year, and whatever challenges that may bring.
Angus MacCuish
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Building Consultancy Our Building Consultancy Departments in both Aberdeen and Glasgow continue to work closely with our Agency Team on a number of instructions. Most recently we have provided advice on two prominent city centre offices, one in Aberdeen and one in Glasgow. A brief summary is as follows:
Aberdeen – The Exchange The FG Burnett Building Consultancy Department were first engaged to provide a pension fund client, with a ‘high level’ view on the condition of The Exchange along with budget costs for major items for expenditure, expected in the short-medium term. Working closely with our Agency Department who were also engaged to provide advice on the local market conditions. We provided a joint proposal to the client which not only highlighted the areas of the premises where expenditure was required, it also suggested areas where capital investment in the premises would provide a much more attractive working environment for potential tenants which would have the potential to mitigate loss of income from void periods. On the basis of our preliminary findings and joint report the client’s Investment Team had the confidence to take the proposal forward and make an offer for the premises subject to a full Building & M&E Survey. The full inspections provided much more in-depth analysis of the premises and the issues therein, however, the main items of note substantially mirrored those initially highlighted. The client proceeded to purchase the premises and have retained FG Burnett’s Building Consultancy Services. Currently we are in the process of negotiating a Terminal Dilapidations settlement with a tenant who has vacated the premises at the expiry of their lease. The client, following our advice, has also instructed a refurbishment of the floor in line with the proposals proffered during the initial high level walk around. On the back of the refurbishment our Agency Department have also received initial interest in the space from several parties.
Glasgow – Royal Exchange House Following a successful bid by our Investment Department in Glasgow, we were instructed to provide advice
in respect of the Building Structure and Fabric at Royal Exchange House, 100 Queen Street, Glasgow. FG Burnett engaged with and coordinated both M&E and Environmental Consultants to offer a full package of Technical Due Diligence advice on the office accommodation, providing recommendations, together with budget costs. Following successful clearance of surveys our client acquired the property and we are pleased to confirm we have been retained to provide ongoing building advice, such as dilapidation claims and negotiations, feasibility studies and ad hoc minor works. FG Burnett continue to assist the client in the ongoing design development, to finalise proposals for a major building refurbishment. The instructions above highlight our expertise in providing specialist advice to key clients within city centre office locations, and the benefits of combining the range of expertise on offer to provide a seamless service to our clients. FGB’s Building Consultancy Department further provide specific advice to a number of other clients on all building types, including retail, industrial and residential.
Personnel Our Building Consultancy Department continues to evolve and expand. This year has seen the appointment of Jim Johnstone to Director in our Aberdeen office. Additionally, in Aberdeen, Stuart Fyvie has recently been promoted to Associate, with Peter Yuill joining the Aberdeen department as a Senior Surveyor. Our Glasgow Building Consultancy offering and client base continues to grow under the stewardship of Angus Forbes, Associate. Both Emilio De Marco (Glasgow) and Iona Foubister (Aberdeen) have been recruited as Graduate Surveyors and FGB have enrolled them on their APC path to Chartership. The promotions and additions across the Building Consultancy team in Scotland demonstrate our capacity to provide excellent and diverse advice to our clients, in a nationwide capacity.
Smart Thinking by David MacLeod The Aberdeen office market is continuing to evolve to meet the aspirations of occupiers - we work in a cosmopolitan city which is a global energy hub and there is no doubt that workplace design is being driven by staff expectations. In a competitive labour market, the quality of your work environment is a significant issue for staff. Smart companies know that enhancing the performance of their people is their primary business objective. If the truth be told, an improvement in the quality of Aberdeen offices is probably overdue. I think most local property professionals have looked at offices in other major UK cities and wondered why we felt a bit behind the curve. No disrespect intended to any developers, as clearly the requirements of occupiers drive what developers will build, however it does feel as if the bar has been raised in Aberdeen. This is being reflected, not only by the quality of buildings that developers are providing, but also by occupier’s investment in fit out and interior design. The best results are undoubtedly where developers and occupiers have worked together from an early stage to design the building and the fit-out in tandem. Designing from the inside out allows an architect to reflect the most important part of the building the people. What would you like in an office - space, thermal comfort, noise control, daylight, views, colour? Yes. But the best buildings will go beyond this and will put visibility, collaboration and connections at the heart of the design. When staff see each other they are more likely to collaborate and connect, both from a business and social perspective. Well-designed fit-out, coffee bars, and break out areas can transform an office - better design will make staff happier and make a company more competitive.
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The changing face of our high streets by
Richard Noble
This is a topic that affects most towns and cities across the UK and generally evokes quite a passionate debate. Here Richard Noble, FG Burnett Director, looks at Union Street in Aberdeen.
Yes, in the last five years void levels have been historically quite high and rents in certain blocks have fallen, but recovery is with us, although still quite fragile. To strengthen that recovery important roles will be played by the planned office developments in our city centre, assistance that agencies such as Aberdeen Inspired and Aberdeen & Grampian Chamber of Commerce can provide and crucially Aberdeen City Council must continue to see Union Street as the critical artery.
“How Union Street is presenting itself is forever topical, rightly so given it provides the backbone to Aberdeen City Centre. In my view much of the discussion is too negative and there is much to be admired with Union Street looking the way it does, given the huge challenges High Streets throughout the land have faced in the last five years, not to mention the pressure from our covered malls.
The most exciting aspect is the planned office schemes, which includes The Silver Fin, The Capitol, Marischal Square and The Point. There are a number of other city centre office schemes but they may not have as direct an effect on Union Street itself, the first two located side by side at Union Street’s West End and totalling 225,000 sq ft. We are already seeing a positive
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effect on occupancy in anticipation of these developments, predictably in the food and drink sector. Trade from the “suits” working in these buildings will have a positive effect on the whole west end, the extent of that is largely down to the quality of the retail offer from occupiers. That’s a point worth repeating, it is up to occupiers to up their game focussing on the quality of their offer and levels of personal service which may outstrip that available from multiples operating from the covered schemes. A continuing disappointing feature are those occupiers who have frontages which badly need decoration and refurbishment, not to mention a good clean – we are all in this together and everyone should play their part. The Marischal Square development is important enough to have an effect on our entire city centre,
P5 a planning application has now been lodged by Muse for 175,000 sq ft of offices and 23,500 sq ft of restaurant/ retail accommodation together with a 125 bed 4 star hotel and 250 new car parking spaces. Another welcome addition now on site is the 80,000 sq ft The Point office scheme by Dandara, situated on Schoolhill adjacent to Union Terrace Gardens. Void levels on Union Street are now very low, the latest figures showing circa 7%, that statistic will compete favourably with any High Street outside the south east of England. Much is made of the mix of occupiers on Union Street with the number of bookmakers, pound shops and other non-fashion uses. This is not just an Aberdeen phenomenon and I expect it will continue to change with the number of bookmakers decreasing as their market changes. As Union Street rents have fallen, representation has become affordable for certain sectors but with very limited opportunities in Union Square and Bon Accord & St Nicholas centres, competition for the best units will see rents rising again. Most recently ECCO Shoes have secured space in the prime stretch of Union Street while conversely Office have moved to much more suitable premises for their footwear offer into St Nicholas Centre. These transactions illustrate the continuing change of the Union Street landscape. The subject of pedestrianisation is never far away when Union Street is being debated and on this subject I can only give a personal view. I am in the camp of seeing Union Street continuing to deal with traffic along its full length. The streetis at its most vibrant on a busy day when cars and buses make their way along its length - issues of pollution need to be dealt with but that’s for the vehicle manufacturers to deal with and hydrogen buses are a step in the right direction. I would prefer to see more pedestrianisation on the streets off and around Union Street, thoroughfares that do / would struggle more with cars and buses than Union Street.
The Forgotten Property Element? The deal is over the line, the legals are done and the management team can breathe a sigh of relief that a strategic acquisition they have pursued for months is in the bag. It’s great news, welcomed by your staff and clients and hopefully somewhat worrying for your competitors, but when the dust settles there could be big implications as to what needs to be done with property assets included in the deal. As a purchaser of a business, you need to have a clear understanding of the obligations you are inheriting when you buy the share capital of a company, said Jim Johnstone, FG Burnett’s Head of Building Consultancy in Aberdeen. “The property element of any acquisition or merger can slip down the priority list but it could bring some unwanted financial burdens if not addressed properly and promptly”, explained Jim. “For example, if a newly acquired asset has sitting or exiting tenants, have they adhered to their basic redecoration and repairing obligations? No one likes unpleasant surprises, especially financial directors who will be unhappy to find a claim for terminal dilapidations arriving out of the blue.” A thorough review of any additions to a company’s existing estate could highlight potential problems, such as the existence of asbestos. Under current legislation occupiers must have an Asbestos Management Survey in place, and if new owners plan to use a building for a different purpose and it entails alteration, a Refurbishment/ Demolition survey must be commissioned.
Other areas that could make a difference to your profitability include rating and insurance. If a property is vacant there is a possibility of securing rates relief, but on the down side, if your business activities are different or ‘riskier’ than the business you have just purchased, it may be that building insurance will attract a higher premium. A Planned Maintenance regime and astute Asset Management can minimise ongoing costs. Planned Maintenance should be a given for any well managed business as it spreads the cost evenly over a financial period and keeps your assets in excellent order, managing risk and adding to their value. Angus MacCuish comments: “It’s important to establish if there are any outstanding rent reviews as you could face a liability or back rent and likewise, if there is an imminent rent review. In the Aberdeen market this has been an issue for the past few years with significant uplifts due at each quinquennium. Jim Johnstone adds: “Service charge is another area which can pack a financial bite. It may be you have taken on a lease in a multi-let office where the landlord plans a major upgrade of the common parts. If not handled properly, the vendor could walk away without liability, having enjoyed the benefits of occupation over many years, leaving the new owner to pick up the tab. “The bottom line is, if you manage the property element of your business efficiently, effectively, and with a good measure of forward planning, your balance sheet bottom line will be much healthier in the long run.”
A welcome to our most recent arrivals to Union Street, Amplifon, Sirene, British Red Cross, ECCO, Enid Hutt Gallery, Nationwide, Quality Treats, Amarone and William Hill. A varied mix of uses, a vibrant mixture which will remain so as long as they can offer what those that come to Union Street to work, shop and play demand.”
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P6
A Tale of Two Cities Forget London and Paris, Aberdeen and Glasgow continue to fuel industry, the boiler room of the Scottish economy. What the Dickens is going on you may ask? Well, in a property context, let us explain... A Glasgow Perspective: A Glasgow Perspective: Industrial development shortage = A great time to invest in well located existing industrial assets. FG Burnett’s Glasgow Agency team has handled a total of 500,000 sq ft of industrial related transactions over the last 12 month period. Interestingly this involved extremely limited land transactions, demonstrating a distinct shortage of new development across Scotland’s Central Belt. In contrast, approximately 50% of the team’s transaction total involved second hand multi-unit estate deals ranging from just 1,000 sq ft to as much as 160,000 sq ft. The Glasgow team, comprising Director Ross Sinclair and Senior Surveyor Michael McDowall, is experiencing notable improvement in occupational demand, evidenced by the statistic involving half of the transacted total being achieved in the last quarter recorded. They consider that there exists considerable opportunity for Landlords and investments to benefit from the improving occupational demand by ensuring that the properties are essentially “oven ready” through refurbishment, therefore allowing immediate entry. Ross Sinclair commented: “There is clear evidence in the market place of a shortage in the supply of good quality refurbished space. Those property owners in a position to inject capital into the refurbishment of welllocated existing industrial assets have experienced notable success. Recent examples of this have involved a number
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of our clients, including MEPC at Hillington, Hermes at Anniesland and Buccleuch at Hamilton International Park.
One UK in the series of transactions which underlines strength of demand for good quality industrial property in Aberdeen.
“In respect of the latter transaction, which involved a 50,000 sq ft fully refurbished building, the price achieved was £2.45 million. This equates to approximately £50 per sq ft capital which, we understand, is the highest sales receipt recorded for a building of this size for a considerable period of time. Not only did we secure optimum price, we did so within four months of the completion of the refurbishment programme.”
Graeme said: “The demand for high quality second hand industrial buildings against a background of limited stock is proving a challenge for Aberdeen’s buoyant economy which is benefitting from a vibrant oil and gas sector. We are working hard to satisfy the expansion plans of a large number of clients and these recent acquisitions and leasings underline the fluidity of the market in the north east.”
Michael McDowall added: “Many industrial occupiers have grown frustrated at the lack of options available and many have placed their requirements on hold until such time as new product enters the market. The undertaking of well-planned refurbishment would help to unlock this reserved demand and we believe that now is the time to do it in light of the lack of proposed new development in the forthcoming years.”
The acquisitions included a 31,000 sq ft facility at Greenbank Crescent, Tullos, on behalf of Stena Drilling Limited, a 30,000 sq ft building on a two acre site at St Machar Drive on behalf of Worldwide Oilfield Machines UK Limited, acquisition of 25,000 sq ft of offices and warehousing at Silverburn Place, Bridge of Don, on behalf of Grayloc Products Limited, and the purchase of a 22,000 sq ft facility at Lawson Drive, Dyce, on behalf of Oceaneering International Services Limited.
FG Burnett is currently marketing a number of industrial opportunities across Scotland’s Central Belt totalling approximately 2 million sq ft, from Renfrewshire to Lothian, with unit sizes ranging from 1,000 sq ft to 250,000 sq ft.
An Aberdeen Perspective: Aberdeen Industrial Booming As FG Burnett Complete £10 Million in Deals. Our Aberdeen Industrial Agents have completed six deals in Aberdeen worth more than £9.5 million and comprising of office and warehousing facilities exceeding 142,000 sq ft. Four acquisitions on behalf of clients ranged in value from £1.35 million to £2.3 million with the two other transactions comprising of six and ten year lease agreements.
A 10 year lease agreement on a 22,000 sq ft office and workshop building at Howemoss Drive on behalf of Heli One UK Limited and a six year lease agreement on a 14,240 sq ft office/ workshop at Howemoss Crescent on behalf of Petrofac Facilities Management Limited were also concluded. Never one to rest on our laurels, we are currently marketing a number of buildings and sites of varying sizes for retained clients, including the sale of a 36,000 sq ft detached office and workshop complex at Burnside Drive, Dyce and a 17,800 sq ft office and workshop facility at Woodside Road, Bridge of Don both on behalf of Baker Hughes. Will there be a revolution or perhaps only Great Expectations!
Aberdeen
FG Burnett Director Graeme Watt and Senior Surveyor Sara Mathieson represented Stena Drilling, Petrofac, Worldwide Oilfield Machines, Grayloc Products Limited, Oceaneering International Services Limited and Heli
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P7
Property Management Life within the property management team at FG Burnett is never quiet but the last few months have been especially exciting as we welcome a number of new instructions and a new face to the team. David Henderson joined our team as Property Manager in April, bringing with him over 14 years’ experience working across the public, private and residential markets in facilities management, and leasing. David is NEBOSH Certificate qualified and an experienced Health and Safety professional specialising in legislative compliance, monitoring and audit. FG Burnett continues to strengthen our relationship with Dandara, with the Property Management
Department being instructed to provide service charge advice and drafting of budgets for the prestigious Stoneywood Development. We worked with the developer to review the development designs and draft budgets for each of the properties at the development, which has the potential to contain 600 detached houses, apartments, townhouses and small area of commercial premises. The team has also be instructed to manage St Mary’s Court office building in Aberdeen, this is a multi-let office building supplying 12,000 sq ft of space. The property management department will be arranging all common services for the property, including maintenance of fire safety equipment, landscaping maintenance and external common parts repairs. Developing long term relationships is central to the FG Burnett philosophy,
‘The Cedar’ Beechwood Grove at Stoneywood by Dandara
a great example of which is the Campus Hilton Development. CALA has recently handed over the final block to FG Burnett, where we will act as Factor for the common area, bringing to a close a development of almost 10 years that has seen a phased handover of apartment blocks during this time. The Campus is a mix of apartments, town houses and detached houses, totalling some 400, with extensive common areas including landscaped areas.
The team are always looking for a new challenge and we have some exciting projects in the pipeline. Why not follow us on Twitter @fgburnett to keep up with all our latest news?
Property Proud to support Awards Wooden Spoon, Sponsors the children’s charity FG Burnett are delighted to announce that we have chosen to support The Wooden Spoon Charity as our corporate charity of the year for 2014/15. The Wooden Spoon is a well-established rugbyfocussed charity which supports disadvantaged children and young people across the UK. The charity is backed by the four Home Nations rugby union federations, with HRH The Princess Royal and Rugby League as Patrons. Wooden Spoon Scotland was established in the early 1990s and has injected more than £2.2 million in to local projects.
FG Burnett will support Wooden Spoon activities in Aberdeen and Glasgow and was the main sponsor of the charity’s annual north east Scotland dinner at the Marcliffe Hotel in Aberdeen on 22 May.
FG Burnett were proud sponsors of the “Niche Agency of the Year” category at the 2014 Property Awards. A great night was had by all and congratulations to Burbage Realty for winning the award.
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Rent Review by Jonathan Nesbitt, Director
The first rent review to be inserted in a commercial lease in the UK took place more than 50 years ago. Since then they have taken many and varied forms, with the general rationale being described by Lord Salmon in 1978 as being ….. “not designed to confer a benefit to either landlord or tenant”, the function being to enable a tenant to secure a long lease and the security of tenure flowing from that, while the landlord was able to regulate the rent so as to ensure the value of money was preserved and the value of the premises increased with inflation. The tenant of an office building in Aberdeen with a rent review looming in 2014 may take issue with this general theory, as it was set at a time of acute inflation and a time when long leases of 25 years were common. The UK economy has not had a period of acute or indeed any significant inflation for many years and in general the average length of lease has reduced significantly, yet the rent review provision is still alive and kicking in the modern commercial lease. Whilst there is no strong argument against the need for periodic rent reviews, it is apparent that in some instances the actual wording of the provision has not been amended to take into account the actual characteristics of the lease in question and square pegs need to be driven into round holes. It is not unusual for rent review clauses to contain ambiguous wording, resulting in the perceived intention of the original drafting parties being hijacked by differing legal interpretation, and what appears to be black and white can in reality be various shades of grey. The basis of a rent review is generally to identify the rent at which the property would reasonably be expected to be let at the date of review, taking into account various assumptions and
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disregards, and accepting that in most instances, the rent will never decrease below the original rent set. Many tenants especially in the retail sector, would have benefited from an upwards or downwards review mechanism over the course of the last five years and while the ability for a downwards review is not impossible, it is very rare. This seems to be contradictory with a market test. In effect the rent will only have cognisance of the market where the market supports a rent either at the same level or in excess of the rent payable immediately prior to the review. The market rent below the passing rent is therefore largely irrelevant. As an alternative to a market test, rents based on turnover are common in the retail sector, suggesting either a strong tenant negotiating position or a very confident landlord, depending on the location and market conditions at the time. As a further example, almost all pre-lets have the rent geared to the greater of market rent or a compound increase p.a. – commonly 2.5% – 3% p.a. This allows rents to keep abreast with inflation but may result in extremely high rental figures in a 20 year lease, where prime rents have been agreed on lease commencement. Assuming a prime rent of £32/sq.ft paid in 2004, at review in 2019, the minimum rent will be £49.85/sq.ft. The market may have kept pace with this, but if not it may make disposal through assignation or subletting difficult. The length of lease to be assumed for the purposes of the rental valuation at review is very important and may have no correlation to the length of the lease originally agreed or in fact the length of term still remaining at each review date. Mental gymnastics are often required to consider what length of hypothetical lease the contract is asking us to assume due to the nature of the words used. This can have a significant impact on the appropriate level of rent to apply. Ambiguity can reign supreme unless the lease is absolutely explicit and in
Contact our Aberdeen Office: +44 (0) 1224 572661 Contact our Glasgow Office: +44 (0) 141 285 7980
www.fgburnett.co.uk
the commercial property world we often ask - “when does 15 years not mean 15 years?”. The answer is, when it is in a rent review clause. This may seem like one way traffic, an uneven landscape where the landlord benefits to the disadvantage of tenants, but that is too narrow a view to adopt. In the current buoyant office market in Aberdeen, a tenant is better faced with a rent review than a lease expiry. The rent review has a safety net of dispute resolution built in, where an independent 3rd party sets the rent in the event of an irreconcilable dispute, normally having received representations from both parties. At lease expiry, a landlord has the ability to seek whatever rent he chooses, with the tenant’s option being to vacate the premises if they are not willing to accept the new rate – assuming the correct Notice provisions have been complied with. Restrictions on the permitted use of the premises, the tenant’s ability to sublet or assign their interest, and the disregard of market incentives, can impact on the appropriate rent to apply. A very onerous lease may benefit a landlord in some respects but will come back to bite at rent review with tenants representatives trying to find any aspect of the lease which could be deemed to render a downward adjustment from the norm appropriate. Market conditions at the time will dictate the strength of these arguments but what is clear is that the process can be mired in uncertainty, ambiguity and the subject of heated debate and litigation. Professional advice should be sought early when faced with a rent review, from both the landlord and tenants point of view. Jonathan Nesbitt is a Director of FG Burnett and Head of the Rent Review department. Jonathan sits on the RICS Scotland Chairman’s Panel of Independent Experts and Arbiters specifically in the field of rent reviews and is a Fellow of the Chartered Institute of Arbitrators.