Abandon hope value, all ye who seek to double or treble the size of your office block.
The wellspring of wealth conferred by the state granting permission to build bigger is going to become harder to source. Planners now want carbon counting, skewing the sums in favour of refurbishment. Worse news for those planning splendid new-build offices in London – a US occupier is rumoured to be seeking refurbed-only space.
It was, therefore, cold comfort to hear from Knight Frank last week that total office returns over the past 70 years have averaged 8.3%, compared with average inflation of 5.1%. A Platinum Jubilee-inspired reminder that “during this period, offices have provided a remarkably stable inflation hedge for investors and landlords”. Cotton mills were no doubt viewed as stable investments at the time of George V’s Silver Jubilee in May 1935.
Chris Brett, head of EMEA capital markets at CBRE, warned the FT on 21 May that “aside from the upper reaches”, what’s coming “is the biggest truck hitting the office market you can imagine”. A declaration as welcome to his peers as cursing in church. The party line is to keep chanting ‘green is good’ and publicise space where plants outnumber people. Done to focus attention on the net zero minority, not the majority of carbon-chewing clunkers.
To be fair, the dangers are constantly discussed: ebbing occupancy thanks to working from home; and rising costs from green conversion. Those occupying the ‘upper reaches’ are well aware and will, of course, remain afloat. The tip of any iceberg remains above water. Less discussed is the fate of secondary offices developed between the 1960s and 1990s – most built to provide space for jobs now either banished by IT or done from home.
Scattered and dimming like fading stars, many blocks lie in the belt between the M25 and the London Congestion Zone; others stand forlorn in cities and county towns. Some will be saved by the inventiveness of owners testing out the planning angles; others will undergo gimcrack conversion to residential, by way of permitted development rights. But the fate of many in this constellation is that of the cotton mills: to lie empty for years.
Shine on – and sue for £1.5bn
You have to admire the sticking power of 70-year-old Ardeshir Naghshineh. Older readers will remember the irrepressible Iranian-born engineer and one-time owner of Centrepoint, who had a £1.2bn property empire wrenched from his grasp by Lloyds Banking Group in 2011. In March this year, he filed a £1.5bn ‘false representation’ claim against Lloyds, or, to be more precise, its subsidiary Bank of Scotland.
“I was destroyed because I trusted this bank,” he says. Naghshineh was finally given permission by the liquidators last August to have a pop at Lloyds. No doubt they would like to get back £408m still owing.
The chances of his success are on the rise. Naghshineh has just hired the London office of specialist US litigator Hausfeld – a scary-looking outfit, which boasts that it “is driven by its bold approach and pioneering experience”.
Lloyds is resisting with determination. Its defence and counterclaim at 62 pages, put together by Addleshaw Goddard, is nearly three times the length of Naghshineh’s claim, put together by his original lawyers in Norwich. The case revolves around costly-to-redeem swap rate contracts tied to alleged bank-manipulated Libor. Further details are beyond my understanding.
The lessons of 2008 have been learned at the speed treacle flows down a glacier. Last week, the Bank of England announced that if one bank collapses it can do so without fear of the contagion that led to blameless Lloyds being forced to absorb the toxic BoS in 2008.
The case scheduled for Q1 2024 will be the biggest relating to the 2008 crisis. If it comes to court, it will make an interesting final chapter to all that has been written.
PS: Naghshineh’s Targetfollow Group survives. The 30-strong group owns 81,000 sq ft in The Pantiles in Tunbridge Wells – and is currently eyeing another retail centre in the town…
Peter Bill is a journalist and the author of Planet Property and Broken Homes
Offices: abandon hope values