issue 04
Solo
SOLUTIONS
Commercial Property
in this issue: Private rental sector at RESI Subsea 7, South London
Project procurement and risk
International Property Measurement Standard
CONTENTS 3 Subsea 7, South London 4 Meet Neil Walker 5 Standard bearers: IPMS 6 Shifting attitudes to project procurement and risk 8 RESI conference and private rental sector (PRS) 10 Retail delivery: steps to success 12 BCO and sustainable offices
Front cover: Hoola, London E16. Apartment block, HUB Group
Welcome
2
I’m delighted to present the latest edition of our UK commercial property publication, Solo.
of a sustainability scholarship award, and she’s doing some innovative work as outlined in the article.
We have a great commercial property team at Faithful+Gould, and it’s my pleasure to introduce some of them over the next few publications. On page 4, you can meet Neil Walker, our recently appointed director of our Nottingham office. Not only can you see Neil performing in his band, a sight rarely seen in our industry, but you can also get an insight into his other passion – the East Midlands commercial property market.
Pages 8 and 9 focus on this year’s RESI conference, and, in particular, the PRS messages that emerged. Attending the conference, Stephen Hole was encouraged by the strong messages of support from the government, and unsurprised by the equally strong calls from developers, for planning reforms and less policy tinkering. PRS forms a substantial part of our residential portfolio, so we’re very keen to support developers and operators in achieving best value.
Our back cover introduces Emma Gains, recently appointed to the BCO Environment, Social & Governance Group. Faithful+Gould is delighted to contribute to this important initiative and I know Emma will do a great job – she’s the current holder
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We’ve also included articles on IPMS, procurement and retail, so I do hope that you’ll find something of interest in Solo. My team and I would be very pleased to further discuss any of the topics with you.
MARK STEVENS
mark.h.stevens@ fgould.com 020 7121 2984
global
project centre Subsea 7, the specialist global off-shore seabed-to-surface engineering company, has built a new Global Project Centre and headquarters at 40 Brighton Road, Sutton, South London. Business growth led Subsea 7 to explore development opportunities and a site for redevelopment was acquired in 2013. The new 186,000 sq ft (GIA) office building was designed with a post-tensioned concrete frame and contemporary materials, to provide high-quality grade A office space. The office can accommodate up to 750+ people over four floors, with a 90-space car park. Facilities include a restaurant, gym and café. A central naturally-lit feature atrium with scenic lifts rises through the building, providing a town hall auditorium at ground level. The building construction included the Cat B fit-out for occupation with early access secured for IT and furniture installation. BREEAM Excellent and carbon reduction targets have been achieved, through renewable energy solutions and high performance design. Integrated BMS and smart interfacing technology provides the platform for reduced operating costs. During the project, health and safety and environment was prioritised throughout the supply chain, complying with the standards expected in the oil and gas industry. Other key issues for the successful redevelopment of the brownfield site: • Demolition of existing car park, whilst protecting site ecology, including compliance with Natural England bat licence. • Negotiation of approvals from Network Rail and the London Borough of Sutton. • Sewer diversion works and geo-environmental investigations to construct basement car park. • Engagement in a challenging market to secure a competitive fixed-price lump sum contract. • Development of client requirements and procurement of furniture, catering, technology and workplace branding. Paul Heal supported Subsea 7 in the procurement of the project team, leading the process through acquisition, planning, design, procurement and delivery. Value was added through: • Securing advice on highways, geo-environmental, ecology and landscaping.
• Active control of costs and design development within clear financial boundaries. • Value engineering during pre-contract design stage and again in collaboration with the main contractor immediately post contract. • Developing an optimal procurement strategy in an increasingly challenging market. • Identification of risks and mitigation strategies at each stage of the project. • Development of detailed Employer’s Requirements to provide clear performance and quality expectations. • Leading the team to ensure Subsea 7’s interests and the quality of the built asset were closely monitored at each stage. • Actively contributing to community liaison and stakeholder management. The project is due to complete in Q4 2016, followed by four weeks’ soft landing period and 12 months’ planned maintenance. Faithful+Gould provided project management, Employer’s Agent, cost management, principal designer (CDM), and health and safety inspections.
PAUL HEAL
paul.heal@ fgould.com 020 7121 2327
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Meet the team Neil Walker
Neil Walker, Faithful+Gould’s office director for Nottingham, shares his passion for the commercial property sector.
WHAT’S YOUR CAREER BACKGROUND? After completing a degree in quantity surveying, I spent four years with Faithful+Gould, before joining an interior fit-out contractor. An 18-month spell with a project management company came next, where I worked on large-scale private residential. I then spent 14 years with EC Harris/Arcadis, mostly specialising in commercial development. My roles included managing their Nottingham office and leading elements of the commercial sector from London. My job also took me to Abu Dhabi for five years, working on some of the world’s largest projects.
WHAT’S YOUR NEXT CHALLENGE? I’ll be aligning our Nottingham office’s fantastic expertise with the great opportunities for commercial development in the East Midlands over the next five years. Our experience in the public sector is unrivalled and we will continue to lead in this area, but we also want to build on the office’s excellent reputation, extending our private sector reach and diversifying into a greater volume of commercial work. We’ve got a team of around 100, split between project management, quantity surveying and building surveying, giving us a very solid skillset. Harnessing that expertise and ensuring we use it on a varied workload is a priority for the office.
WHAT ATTRACTED YOU TO THE COMMERCIAL PROPERTY SECTOR? It’s what I’ve always done! It’s what my mentor did in my first job, so I followed and found I really liked it. I enjoy working with developers and influencing the appraisal process. The stimulation from large exciting projects such as the Scalpel in London’s City and the New York University in Abu Dhabi has been a massive draw. TELL US ABOUT YOUR ROLE AT FAITHFUL+GOULD I joined this year, enthused by the commercial development opportunities in the East Midlands and also the prospect of spending less time in London. I’ve hugely enjoyed working on some of the world’s highest-profile office towers, but capital cities are not the only opportunity. Increasingly, developers are looking at the more cost-effective regional potential. So my new role is leading Faithful+Gould’s Nottingham office, reconnecting with my local contacts and developing and diversifying our regional offering. HOW DO YOU VIEW THE CURRENT EAST MIDLANDS COMMERCIAL PROPERTY MARKET? The East Midlands isn’t a huge market for
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commercial development right now – certainly it can’t compete with London or Manchester. But it’s right on the edge of new opportunities. As the political landscape changes and Brexit is negotiated, I anticipate continued investment in the region’s commercial property sector. The HS2 railway has the potential to help the East Midlands become a world-class commercial hub, rivalling the largest economic regions in the UK. There’s a shortage of Grade A office space and a strong need for private rental sector residential across the region, and the market will respond. At Faithful+Gould, we’re ready to play our part, and my conversations with developers and contractors suggest that they’re ready too.
WOULD YOU CHOOSE COMMERCIAL PROPERTY IF YOU WERE A NEW ENTRANT TO THE INDUSTRY TODAY? Definitely. It’s an exciting sector, where you bring a project to life, often from the starting point of a piece of land and a couple of basic drawings. Commercial developers generally understand the value that we can bring to their projects and so the relationships are usually strong, and you can really influence the way they take their project to market. Showing them how they can improve the project, achieve efficiencies, get better space utilisation and better returns… it’s a very rewarding sector to work in. WHAT INSPIRES YOU OUTSIDE OF WORK? I’m the lead singer in Red Tape, a covers band playing gigs across the East Midlands throughout the year. The band grew out of a charity event called the Nottingham Hot Property Show, where local property professionals come together to put on a show each year while raising money for charity. The other four Red Tape members are lawyers, and we have a lot of fun – a great antidote to the daily grind! I also enjoy playing football, cricket and generally keeping fit, and travelling with my family in our VW campers.
standard
bearers
The way we measure residential buildings is changing. On 26 September, International Property Measurement Standards (IPMS): Residential Buildings was issued by the IPMS Coalition, an independent group of 73 professional bodies around the world. Earlier this year, RICS gave Faithful+Gould an insight into how this will change current measurement practice. The IPMS has been created to provide transparency and consistency in the way property is measured across global markets. Its application to office buildings became mandatory for all RICS members from 2 January this year (unless a client specifically requests otherwise). Faithful+Gould pre-issued a practice note to the UK development market explaining the principal differences between the new and old methodologies. So what’s new in the IPMS: Residential Buildings? Firstly, it provides standard definitions for the following residential-specific terms: • Balcony • Patio • Residential building • Veranda. Secondly, it revises the definition for the concepts of Internal Dominant Face (IDF) and IDF (Internal Wall Section) to make the definitions easier to understand and interpret.
area). IPMS 1 also includes balconies and terraces, but these are to be measured separately. IPMS 2 – This is used for measuring the internal floor area of a residential building, measured to the IDF, and this equates closely to the current definition of GIA (gross internal area). IPMS 2 includes balconies and terraces, but again these are to be measured separately IPMS 3 – This is used for measuring the internal floor area in exclusive occupation and roughly equates to the current definition of NIA (net internal area). However, to accommodate differing international measuring bases, there are three variations: IPMS 3A, 3B and 3C. Each is fully defined within the standard. It is not enough to say that the area has been measured according to IPMS 3 – which variation must be specified. For each of the measurement standards IPMS 1, 2 and 3, the standard also differentiates between “dwellings” and “apartments”. Finally, the standard introduces “Residential Component Areas”. These are suggested sub-divisions of the floor space, such as hygiene and circulation areas, that may be used when areas need to be separately allocated for cost, benchmarking or other purposes under IPMS 1 and IPMS 2.
Thirdly, it provides three measurement standards for measuring floor areas:
RICS is now working on revising its Professional Statement on Property Measurement to include the new IPMS: Residential Buildings and this is expected to be published in early 2017.
IPMS 1 – This is used for measuring the floor area of a residential building, including external walls, and equates closely to the current definition of GEA (gross external
Faithful+Gould will once again pre-issue a practice note to give a more detailed explanation and guidance on the standard’s use. Watch this space.
KENNY MAN kenny.man @fgould.com 020 7121 2877
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Shifting attitudes to
Project Proc AND RISK During the previous property market downturn, contractors commonly accepted project risks and contract conditions that would earlier have been declined. In recent years, single-stage tenders have been readily available in the market, with clients benefiting from contractors’ straight race approach on lowest cost and project risk transfer. The lack of high-value quality projects, particularly outside of London and the South East, created a market which assumed that contractors would participate in a way that overly favoured the client. However, today’s more buoyant property market is very different and contractors are reluctant to enter into single-stage tendering arrangements. Two-stage and negotiated procurement are currently the routes of choice. Having moved away from what some considered a client-privileged market, contractors are now more selective in their choice of projects to tender. Contractors’ direct costs on Preconstruction Service Agreements are generally no longer provided at no cost, and the acceptance of onerous conditions and risk transfer is no longer the norm. In our experience, contractors are acutely aware of their capacity constraints. Many firms suffered the loss of experienced staff during the downturn, with contractors’ estimating departments considerably reduced. Contractors have emerged leaner, just like client organisations and consultancies, and they often don’t have the capacity for short-notice tendering, especially for projects requiring specialist package input such as bespoke or complex mechanical and electrical solutions.
NIGEL HINKS nigel.hinks@ fgould.com 0121 483 6301
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This leaner culture has reverberated through the development process. At project outset, getting early speculative advice from contractors has been a time-honoured informal part of the procurement process. It still happens, but response time, and the time contractors and their supply chain are willing to spend at this early stage, is limited. Subcontractors have experienced similar changes and they too often lack the resource to offer comprehensive early cost advice. Attitude to risk has shifted and contractors are usually unwilling to accept risks that they are not best placed to manage, or not given control to manage.
With the rebalancing of terms across the client/contractor relationship and given that the two-stage approach is undoubtedly more attractive and important to contractors, how can clients get the best procurement deals and ultimately have their project delivered satisfactorily? Open and honest conversation across the client, consultant and contractor parties, supported by good working relationships, is key. The ‘take it or leave it’ approach is a relic of poor procurement practice and well-informed clients seek the advice of their team to assist them in fulfilling their goals. At Faithful+Gould, we frequently engage with contractors and subcontractors, understanding what is important to them, what makes a project a desirable prospect and what will motivate them to accept the level of risk proposed by the client. In our experience, negotiated procurement on complex developments is becoming commonplace and we have built an excellent track
curement The recent Brexit referendum result could have significant implications for construction procurement.
record of tendering in this way, on developments such as Paradise Circus, Birmingham, for example. To make this work, employers’ requirements need to be carefully and attractively designed to appeal to targeted contractors. We support our clients in developing a clear brief that removes uncertainty and limits the client’s risk profile, while ensuring that the contractor is armed with the information required to enable them to accept those risks which they are best placed to manage. This means providing high-quality information with the right level of detail, packaged as a favourable proposition for contractors. It is worth noting that expectations on tender return dates need to be realistic in order to achieve the best result. This is undoubtedly a sensible tactic, but in reality it’s not always
the one employed. An inflexible approach by either the client or contractor can unfortunately jeopardise the relationships and reputations that are so vital to project success. Post-Brexit, there is huge uncertainty within the property and construction market. Some insiders are forecasting a return to recession, and, as a result, we are once more seeing a shift in procurement expectation and assignment of risk. Events will unfold in due course, but our early observations suggest that contractors are reviewing their procurement approach in favour of the client. At Faithful+Gould, we take pride in tailoring our approach to meets the needs of each development. Our aim is to get the best results from the procurement process, not only for our client but ideally for the whole design team. Teamwork, rather than a rigid hierarchical system, together with aiming for a balanced risk register, is more likely to bring about a satisfactory project outcome.
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THE PRIVATE
RENTAL SECTOR
Can PRS fill the gap created by unaffordable mortgages and a shrinking supply of social housing? The 2016 RESI Conference debated the issues. Housing policy in recent years has been driven by two aims: to increase owner-occupation and provide a larger volume of affordable housing. The role of the private rented sector (PRS), however, was largely overlooked. This is now changing, with the policy spotlight more firmly on what the PRS can offer over the medium to long term. The 10th anniversary RESI Conference, held in September in Newport, south east Wales, brought together policymakers and market players, to reveal how the government plans to deliver on its housing targets, and how the market will respond in these uncertain times. It was clear that PRS has significant institutional
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support at both government and local planning authority level. Key speakers included housing minister Gavin Barwell MP, London deputy mayor for housing James Murray, and former chancellor Nigel Lawson. Gavin Barwell called for more homes of every type to be built, signalling a shift away from the Cameron-Osborne homeownership policy. He acknowledged the country’s housing ambitions would never be achieved without a significant boost for institutional investment in PRS. The minister also challenged developers to build more quickly and to avoid landbanking, with potential fines being brought into play.
James Murray highlighted the need to broaden the base of supply, and acknowledged that we need to find a way of fitting affordable housing into PRS. Planning reform was another priority for Murray, as developers called for the system to be clearer, quicker and more consistent, with clearer guidance for councils on build to rent. Developer response from subsequent speakers, and from the audience, indicated frustration with repeated changes in housing policy. The often complicated and long-winded planning approvals process, including the length of time to produce a Section 106 agreement, was another barrier. The request for either Section 106 or the CIL payment, not
Other themes from the RESI conference included the potential for modular construction to accelerate the build programme, thus providing homes more quickly, as it has done for student accommodation. Tom Bloxham, chairman of regeneration specialists Urban Splash, envisaged modular being 70 to 80 per cent of his business in the future, while Berkeley’s Tony Pidgley said modular would form 20 per cent of the group’s pipeline with immediate effect. both, was widely supported. Discussion also focused on the constraints associated with green belt policy. The overall message was too many parties involved and too much red tape. The sensitive topic of integrated versus segregated affordable housing within the PRS model was debated, together with the financial challenge posed by affordable quotas. Murray requires every development to have 50 per cent affordable units, without downspecifying. Developers responded that they cannot be expected to pick up the tab. PRS operators suggested that they would benefit from being part of the design process, to avoid retrospective design and re-fit. They also talked about the need to balance design with value, and the dilemmas of providing amenity spaces when maximising net to
Since the conference, the government has announced new money available for builders, in the form of a £2bn Accelerated Construction scheme that will make publicly-owned brownfield land available for quick development. Chancellor Philip Hammond and communities secretary Sajid Javid said the new scheme, alongside the previously announced £3bn Home Builders Fund, will help fund the development of 25,500 homes by 2020. The fund will encourage off-site construction, and will be accompanied by changes to planning rules to adopt a de facto presumption in favour of development on brownfield sites. The government will also extend permitted development rights to allow for the demolition of office blocks for residential development, which it hopes will provide an extra 4,000 homes by the end of 2021.
Abbey Place, Abbey Wood, Greenwich, HUB Group.
Boiler House, Old Vinyl Factory, Hayes. HUB Group.
gross floor ratio is a key financial driver. They called for more community engagement when designing a product, stating that prospective tenants should be asked about their needs and wants, with regular feedback sessions, if successful communities are to be created. Interestingly, the operators cited staff training as a challenge: tenants want the friendliest staff, including concierges and cleaners.
As one of the earliest delivery partners for the new PRS model, Faithful+Gould is wellpositioned to support clients in making informed decisions around planning, designing, funding, operating and maintaining assets, ultimately achieving best value. We understand the degree of variance among PRS products, compared to other forms of tenure, and we help our clients make sense of the associated variance in cost. Our portfolio includes the UK’s first forwardfunded PRS scheme, providing152 units in the London Borough of Ealing due for completion in early 2017. We are currently working with operators including Fizzy Living and developers including HUB Residential, on innovative schemes in Lewisham, Hillingdon, Wembley, Croydon, Greenwich and Hayes, as well as exploring the model’s potential in other areas of London.
STEPHEN HOLE stephen.hole@ fgould.com 0121 483 5070
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Retail Delivery
the steps to success New developments reap more benefits if a dedicated retail delivery team is established at an early stage in the construction process. Any new retail and leisure development represents a significant investment for a client and their funders. Retail delivery is one of the key factors that sits alongside letting, marketing and construction, to ensure that the project is a success.
In new retail and leisure developments, the process is generally undertaken by a dedicated retail delivery management team. This team can be an extension to the client development team, the project management team or a stand-alone independent team.
Retail delivery is best described as the process that facilitates an agreement between a landlord and a tenant, and includes identifying a retail letting space right through to opening a retail unit for trading. This standardised process is undertaken in both existing and new retail developments.
At Faithful+Gould, we have key individuals with experience of establishing and managing successful retail delivery management teams. They can raise tenant design standards to meet client aspirations and assist with ensuring that retail units open for trading on time, to coincide with the completion of the overall development.
Friars Walk, Newport, S.E. Wales.
In existing retail developments, shopping centres and high street environments, retail delivery is typically undertaken by the on-site management team and their managing agents and leasing surveyors.
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New developments tend to reap more benefits if a dedicated retail delivery team is established at an early stage in the construction process. It is important
Friars Walk, Newport, S.E. Wales.
that the main contractor has formal contract duties associated with the retail delivery process, and care should be taken during the pre-construction stage to ensure that contract documents capture the requirements of the retail delivery process. THE KEY STEPS UNDERTAKEN BY OUR RETAIL DELIVERY TEAM INCLUDE: • Producing a project-specific tenant handbook that details the client vision statement, unit specifications, design guides, approval process, contractor site constraints, logistics plan and unit services information. • Briefing the tenants on the handbook requirements and engaging with them throughout the process to ensure that information is agreed at the appropriate milestone stage approvals. • Checking the draft heads of terms for each proposed tenant with the leasing team, to ensure that the outline specification can be delivered. • Informing stakeholders of any anomalies in specification and associated cost/programme implications. • Working with the tenant and their representatives to agree a detailed specification in accordance with the heads of terms that can be appended to the agreement for lease. • Inputting into the agreement for lease negotiations to
ensure that the landlord obligations in terms of timing, delivery and specification are in accordance with the main contractor’s contract documents. • Managing the main contractor change control process (if required) in conjunction with the project management team, once the agreement for lease is exchanged. • Managing the tenant change control process in conjunction with the project management team. • Gathering all appropriate completion documentation such as Health and Safety File, Building Control certificates, commissioning certificates, EPC etc, once the tenant has opened for trade. • Facilitate settlement of all accounts, e.g. tenant changes/inducement sums/approval fees/specialist contractor connection costs etc. The successful delivery of these services not only maintains excellent relationships with clients, but allows for the development of new and exciting relationships with a whole range of local, national and multi-national tenants. Faithful+Gould’s retail experience includes major new developments, refurbishments and individual retail units. Our portfolio includes Selfridges’ capital works programmes across London, Manchester and Birmingham, New Look, Nike, Nokia, Boots, B&Q, Superdrug and Tesco.
JAMIE CHARD jamie.chard@ fgould.com 02920 485 181
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BCO BACKS
SUSTAINABLE OfFIces
MARK STEVENS mark.h.stevens@fgould.com 020 7121 2984
Emma Gains joins BCO’s Environment, Social & Governance Group. As Britain’s leading forum for the discussion and debate of issues affecting the office sector, the British Council for Offices (BCO) set up its Environment, Social & Governance Group (ESG) to address many of the environmental challenges facing stakeholders. Faithful+Gould’s Emma Gains has been elected to the ESG and she explains the group’s remit: “We’re addressing those aspects of environmental sustainability that affect and influence office development, design and occupation. We’re keen to explore concepts of urban regeneration, mixed use development, social engagement, and investment and finance questions. “The ESG commissions and produces research reports and discussion papers to disseminate best practice and new thinking, and also hosts technical seminars and workshops for BCO members on aspects of green issues that affect office developments. We also act as a focal point in responding to government consultation papers on environmental issues. “I’m delighted to have been accepted onto the ESG committee and look forward to working alongside other members of the group to steer environmental and sustainability best practice and really make a difference to the way we
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deliver office developments. I’m part of BCO NextGen, an initiative to encourage young professionals to share their ideas and become BCO leaders. “This fits very well with the work I carry out for my clients at Faithful+Gould. For instance, I’m currently working as part of a team on a project called the ‘Implementing of Whole Life Carbon in Buildings’ (IWLCIB), with academic review by the University of Cambridge. We’re developing a clear and user-friendly framework for whole life carbon assessment and carbon certification of buildings for use across the industry.
MATTHEW GOODWIN matthew.goodwin@fgould.com 020 3214 8926
NEIL BRIERLEY neil.brierley@fgould.com 02920 35 8087
“I’m also working on the development and implementation of an environmental auditing process, based on planning requirements and on environmental targets that go beyond basic requirements. “This involves auditing each contractor company on a project, scoring them on their progress every two months. There are so many innovative environmental sustainability schemes across the country, and I’m looking forward to helping BCO publicise these more widely.”
NEIL WALKER neil.walker@fgould.com 0115 957 483
NIGEL HINKS nigel.hinks@fgould.com 0121 483 6301
EMMA GAINS
emma.gains@ fgould.com 020 3214 8820 Emma Gains receiving the sustainability scholarship award from the CIOB, The Worshipful Company of Constructors and Reading College of Estate Management.
PAUL SHERRY paul.sherry@fgould.com 0131 221 5659