Sitting snugly against the side of the M27 as the motorway bends around Portsea Island in Hampshire is a building that is much loved by Portsmouth locals. It isn’t a church, a museum or a fancy shopping centre - it’s an office block.
The building was once the 130-acre headquarters of one of the area’s largest employers, IBM, and was significant not only for that reason but for its position overlooking one of the city’s major thoroughfares and its unusual tiered appearance that stood in contrast to the Brutalist architecture of neighbouring buildings.
IBM sold the building in 2005 to Highcross, which was later acquired by Northwood Funds, and leased back the space. Since then it has gradually reduced its footprint, enabling the developer to rework the site as a business park, now known as Lakeside North Harbour.
So how did Highcross and Northwood Funds pull off what Vail Williams partner Philip Holmes - joint agent for the site with Hughes Ellard - describes as such a transformational project?
It has been a long, tortuous road to get to this point. Over the last 10 years, the site has been subject to almost continuous evolution. After the 2005 sale, IBM vacated Building 1000 - one of five offices on the campus - in 2007, freeing up 270,000 sq ft of space and marking the start of what would become an extensive refurbishment by Highcross and then Northwood.
“Building 1000 needed a significant refit,” says Holmes. “The main highlight was the installation of a huge atrium at the front, which changed the whole feel and image of the building. Offices were refurbished and fully redecorated, as were the common areas.”
The first occupier to move in was Regus Business Centres in 2008, followed by a range of businesses, including Capita and Babcock, in 2011. The following year, Northwood began redeveloping other parts of the site, including the retail area known as Central Square, which is home to a Starbucks, a Subway, a Co-op, hair and beauty outlets and a children’s nursery, which is set to expand this summer as a result of increased demand.
Northwood also disposed of areas of the site that were ripe for development (planning permission had been granted in 2009), to Porsche and Village Hotels in 2012 and 2013 respectively.
By 2014, Building 1000 was fully let, having attracted waste management firm Helistrat and sports retailer Wiggle. It was good timing: in 2015, IBM retreated further from the site.
“IBM’s sale-and-leaseback structure included a break option over the remaining office space,” explains Nick Turner, asset manager for Northwood Regional UK. “This was actioned as anticipated. It signed new leases for 84,000 sq ft in Building 4000 and 5000 and ultimately handed back circa 135,000 sq ft at the end of 2015.”
Building 2000 and Building 3000 were refurbished in the first half of 2016 and brought to the market in the third quarter. To date, around 60,000 sq ft has been let to a range of occupiers including IT firms Lead Forensics and Transas, Capita and insurance company SPB, says Turner.
The latest refurbishment work was a lesson in sensible spending, believes Holmes. “Northwood was very clever about how it spent the money,” he says. “The offices were refurbished. What it did was remove some of the walls [revealing the internal glazed street], which meant light came into the building from different directions - and that completely transformed the space and the feel of the office.”
The improvements to the Central Square part of the campus were a smart investment too, says Holmes, as they turned the site into a genuine office park with the onsite amenities needed to retain occupiers and their staff for the long term.
“Accessibility, amenity, transport links, onsite facilities such as electric charging points, social activities - the occupier today wants all these things,” he says. “There is a restaurant on site, a coffee shop, a florist - these things help retain high-quality staff.”
The flexibility of the space is another boon, Turner says. “Our smallest suite is just over 1,000 sq ft so we can offer space from that size up to a single floor on the ground of Building 2000 of circa 36,000 sq ft,” he says.
That flexibility means companies can grow within the scheme, expanding their footprint as their businesses grow.
“Quite a few occupiers have grown with us over the past 10 years, including Carrington West, Douglas Stafford, Babcock, Market Makers, Verisona, Integritie, Wiggle and Wunelli,” says Turner. “We have had a great deal of success in moving occupiers around to facilitate their business requirements, both by upsizing and downsizing.”
Babcock, for example, took an additional 55,000 sq ft in Building 1000 last year, he says.
Holmes adds that Portsmouth doesn’t tend to generate large numbers of enquiries from occupiers looking to move from London. “It is a step too far. They tend to go to Guildford, Woking, Godalming, Farnham and Basingstoke,” he says.
The strategy is therefore to target companies already based in the region. “Firstly, what we have are regional occupiers who are looking to expand and take more space,” Holmes explains.
“Typically, a client will look at us, a couple of smaller office buildings in central Portsmouth and Solent Business Park. We might be a little more expensive in some cases but the service charge is a bit cheaper because of the level of occupancy.
“The second strand is trying to attract people from Solent Business Park and other areas through specific targeting. The third strand is organic growth.”
Holmes admits that for some businesses, Lakeside does not fit the bill. “Some want their own building, their own flag, their own brass plaque outside the door,” he says. “We don’t offer that. If you want somewhere you can retain your staff and have that optimal business environment, that is what we do.”
However, he adds that bespoke space can be provided if tenants are willing to wait 18 months for a new-build to be delivered.
These factors - combined with ongoing investment and the lack of a similar business environment nearby - mean the developer invariably gets the rents it is after, claims Holmes.
“Rents have increased over the past couple of years, primarily as there is a shortage of good-quality office space and continuing demand from businesses keen to improve the working environment for their staff,” he explains. “Our refurbishment projects have definitely increased rents as the space has been significantly improved.”
The occupancy rate now stands at 85%, leaving 75,000 sq ft available on the campus. Turner has ambitious plans for the future that will include a £21m, 153-bedroom hotel and leisure complex developed by Village Hotels.
“It will have three key segments - bedrooms, a full fitness club with pool and a generous food and beverage offering with full conferencing and event facilities,” he says.
Then there are further development opportunities on some 10 acres of unused land. Turner says he is talking to several parties and is willing to consider a variety of uses, subject to planning. He adds that he is keen to enhance the amenities on the campus where possible.
Speculative development is not an option at present, though. “We’re not yet at the stage to start speculative office development, primarily because we have some speculatively refurbished office stock to let,” says Turner. “But that is very likely to change over the next few years as we look to develop the campus further and meet demand from occupiers who aren’t able to find the right space to suit their business.”
Such developments will mean that the site will evolve further from its IBM roots. However, the tech giant still occupies a significant portion of the site, with 84,000 sq ft of office space and a 105,000 sq ft data centre.
You could be forgiven for thinking its presence remains integral to the site’s success and its future prosperity, but Holmes disputes that.
“It is great to have IBM as an occupier but I don’t think it’s a selling point - people don’t tend to come here because IBM is here, but it is a good income stream and good for Northwood. We’ll see how long they stay here - we hope they’re here for the foreseeable future.”
24 July 2017