On the latest episode of PropCast, clustering, co-locations and a laser-like focus on customers are some of the things that British Land’s boss believes will drive value as it broadens its campus strategy to include life sciences, logistics and housing.
Chief executive Simon Carter speaks to Andrew Teacher, formerly the founder of Blackstock Consulting and now managing director at Montfort Real Estate after its merger last year, in an unscripted, hard-hitting and wide-ranging conversation. The pair cover everything from British Land’s 40-year tenure at Regent’s Place, the renaissance of retail parks and the rise of life sciences; through to its campaigning work improving child literacy.
“Customers want the best,” says Simon Carter, shrugging off a tough week at the helm of British Land, one of the world’s oldest and most respected real estate brands. Many want a bit less space, he admits, because of hybrid working, but says “they’re focused unequivocally on quality”.
“For the last four or five years we feel the campuses have been outperforming and it comes down to where demand is strongest and the how the bifurcation of the market creates winners and losers,” he explains.
While a handful of critics have questioned the firm’s focus on the City of London, Carter is quick to point out that British Land’s three London campuses in Broadgate, Regent’s Place and Paddington Central each have great transport links, sitting aloft interesting bars, fantastic public realm and a deep well of other amenities.
But more than that, these campuses have evolved. And the bifurcation being seen in the market – regularly described on PropCast as the “K-shaped recovery” – means there is a dash for quality that underpins British Land’s strategy.
“Broadgate has repositioned itself over time,” Carters explains. “It faces into Spitalfields and Shoreditch and offers a wholly different environment to the rest of the City. It actually continues to be one of our very best-performing assets.”
Carter – like the rest of the property industry – has been somewhat unlucky with Brexit and Covid dampening confidence in the UK economy, for which British Land is often seen by investors as a proxy. However, the REIT’s boss has been luckier when it comes to assets like Regent’s Place and Canada Water, which are both well-primed to take advantage of emerging trends such demand for labs, repositioned office and outdoor space.
Nestled in the heart of the capital’s Knowledge Quarter – between great research institutions like the Crick and Turing Institutes – Regent’s Place is well-positioned for life sciences demand. Carter believes that this will enable British Land to create a strong foothold in what remains a nascent market in Britain.
South of the river, the firm is boldly looking to create its own life sciences hub at Canada Water and has stolen a march on many rivals thanks to what Carter describes as a “bit of an experiment”.
“We built an engineering faculty using modules for two universities that has been up and running now for two years,” he says. “We saw there was a gap in the market for firms needing lab space now, and so we’ve pressed the button on 33,000 sq ft of space that will be delivered inside nine months,” referring to new a new cutting-edge laboratory dubbed The Paper Yard.
“Companies just want to get on and do their research. It’s obviously very different from Regent’s Place – but with Canada Water we have a blank canvas to deliver space today and fast-growing businesses can come to us and benefit from being able to grow with us,” he adds.
Listen back to PropCast episode #151: Sky is not the limit for Brookfield’s Advanced Research Clusters as it grows European science and innovation platform.
One area of growth in recent years has been the company’s retail park strategy.
“Two years ago, we began to see that rents had stabilised and despite the challenges of Covid, our leasing team was growing in confidence and so we started to buy additional parks,” Carter says, recalling it to be a value opportunity that the firm combined with the economies of scale that came from having a market-leading position in the asset class.
“Parks work for omni-channel – they’re great for click-and-collect, returns or just going in to buy things,” he responds. “Rents are also very affordable in terms of total occupational cost – around eight percent for customers – meaning we can attract an incredibly broad range of retailers.
“Because most parks house just 15-20 units, it’s easier to keep them full and for the first time in four years, we’ve got rental growth.”
Currently enjoying his second stint at British Land, Carter initially joined the business in 2004, having been hand-picked by Sir John Ritblat, the firm’s legendary founder.
“I’ve had the privilege of working for each of the previous three CEOs,” he says warmly. “They each brought different things to the business – Chris Grigg most latterly was very customer-focused and that’s been a great legacy for us.”
Carter talks passionately about continuing that legacy, believing the firm’s strengths to be development, placemaking and asset management. And he agrees that the latter is very much the “engine” of value creation – supporting not just British Land’s campuses, but emerging strategies like life sciences and its blossoming urban logistics platform in London.
“We felt if we could put facilities right in Zone 1 where they didn’t exist and enable electric vehicles, we could make a great impact on reducing pollution and cutting carbon,” he says of the firm’s last mile play.
Late last year, British Land submitted a planning application for a 127,000 sq ft urban logistics hub at its Paddington Central campus, which will have an entirely electric fleet. The impact of this will reduce carbon emissions in the local area equivalent to more than six times the sequestration effect of all the trees in Hyde Park.
Without dismissing the current economic challenges, Carter is confident that by using the asset management “engine” of British Land that’s able to secure planning, manage complex development and drive best-in-class leasing and marketing, it can still drive value in spite of macro headwinds (notably a hike in the risk-free rate) that have caused investors to re-evaluate pricing and their appetite for risk.
“We are delivering the last mile developments for six percent yield on cost and with rental growth of between three and five percent – because of a lot of unmet demand – which we think is an appropriate return that complements other elements of our strategy,” he says.
While the last mile strategy is increasingly looking to help decarbonise delivery, a bigger challenge is clearly the buildings themselves. Carter believes the industry is now grasping the challenge, but says there are barriers that still need to be overcome, such as access to power in the right places or improving research into greener concrete and other materials.
“We’re three years into our strategy and there’s a lot to do. Some of it can be done in a straight-forward manner – replacing lights or insulating buildings – but changing power systems is more complex. The challenge is building at the levels of embodied carbon we need to hit.
“We do need to see more material innovation, but our customers want net zero buildings and I think we will get there – but that we shouldn’t underestimate the challenge. Unless we’re bolder we won’t get there.”
Things are moving in the right direction. One recent letting is the fully-electrified 3 Sheldon Place, taken by Virgin Media O2 – a refurbishment in the burgeoning Paddington Central which Carter says is often busier at weekends than on Mondays and Tuesdays.
“It’s really matured, and the investment in meanwhile uses and a range of top-class F&B has been hugely popular with all of our customers,” he adds.
This curation – not just of office occupiers but of amenities – is a crucial part of any successful placemaking strategy.
“A campus has large numbers of people on site – it requires curation and constant evolution,” Carter passionately explains. “A huge amount of work goes into nurturing these relationships each week – not because people will rent more space right away, but because if you understand what’s happening you can adapt more quickly.
“When I talk to investors about asset management, this is what I mean: it is absolutely the engine of our business,” he declares. “It’s changed hugely over the years.”
While many firms look inwards, British Land has quietly been doing much with communities over the years. Its Young Readers Programme, delivered in partnership with the National Literacy Trust, has benefited over 48,000 children living locally to its schemes.
“Education and employment are the areas we feel we can have most impact on,” Carter explains.
“If we can find high quality workers that our customers are crying out for and help give them the skills to flourish, we think it’s something we should be doing.”
Although Britain’s economy is far from out of the woods, Carter is pragmatic in his approach to those challenges and unwavering in his focus on building long-term value, looking beyond any short-term volatility.
“Take Canada Water,” he explains. “The team took the view it’s a 10-12 year project and that things will change. Roger Madelin [‘Mr. Argent’] brought a lot of the learnings from his King’s Cross days but the fundamentals are there: it’s got green space, great transport links and we’re keeping the Printworks as a cultural anchor for the site.”
Although Carter came of age in the 1980s – a time when electronic pioneers like Depeche Mode and Duran Duran ruled the charts – he cites guitar legends Foo Fighters and Oasis as being atop his musical playlist: “My son and I can always belt out a version of Wonderwall between us.”
Referring to the former Daily Mail print works – which has become an iconic venue at Canada Water for upcoming rap and electronic artists over recent years – he quips: “Who knew we’d have the world’s number one nightclub?”
Was that part of the strategy though? “It’s better to be lucky than smart,” adds Carter – who studied Economics at Cambridge. You make your own luck, though.