Govt confirms giant Cardiff move as L&G builds portfolio of govt office stock

By Paul Norman - Tuesday, August 08, 2017 11:30

Rightacres Property (Rightacres) and Legal & General (L&G) have completed the largest ever office leasing deal in Wales with the UK Government opening a new Government hub at Central Square, Wales’ largest regeneration project.

The UK Government has taken a 25 year lease on 265,976 sq ft of office space at Central Square which is being developed by Rightacres and funded by L&G. This latest announcement takes the total gross square footage of newly constructed office space at the scheme to over one million square feet.

Central Square is set to become home to more than 4,000 public servants from several UK Government departments. This includes HMRC, who will run one of their 13 regional centres from the site, and the Office for the Secretary of State for Wales. The UK Government Property Unit (GPU), advised by JLL, is overseeing the deal for the new hub.

Construction of phase one of the Central Square project commenced in 2014, with One Central Square completed in March 2016. It was 21% pre-let to Blake Morgan LLP, demonstrating demand for high-quality office space in the area.

Works are progressing on phases two and three of Rightacres and Legal & General’s scheme, which will include a new £120m headquarters for BBC Cymru Wales, and are expected to be completed by mid-2018, offering a range of new local dining options and amenities for the influx of employees working in the area. 

Paul McCarthy, Chief Executive of Rightacres, says: “Over the past few years, Cardiff has experienced the perfect storm of requirements; I don’t think there has ever been such a large number of office requirements in such a short time frame. The BBC, Hugh James, MotoNovo and Government requirements, which total over 600,000 sq ft net, all came within a two year period. Both the BBC and GPU projects were tendered, and we have been supported by a very strong team of professionals whose own track record have helped us secure these projects. We were also lucky enough secure funding from Legal & General who understand Cardiff and its vision.”

Tom Roberts, Head of Strategic Investment & Regeneration, LGIM Real Assets, added: “This pre-let to the UK Government represents another enormous milestone in the delivery of Central Square, one of the country’s most impressive and transformational regeneration schemes. This city gateway development is already delivering major social and economic benefits, and proves the model for the public and private sectors working together in order to unlock real UK growth. Our confidence in this project has been fully rewarded and the momentum continues to grow at pace. Securing this pre-let has been a huge team effort from all involved and we now look forward to continuing to work with our partners, Rightacres and Cardiff Council, to deliver further projects.”

Kerrigan Procter, Managing Director of LGR, said: “Central Square is one of the UK’s biggest regeneration stories. This pre-let is an excellent deal to have secured and another example of how Legal & General’s different business divisions have worked together to drive forward this major urban regeneration project. Our financing for Central Square is a strong investment for us as the long term income it produces helps to pay our customers’ pensions, as well as creating new jobs and driving economic growth - which is good for business and our customers.”

L&G has already invested £8bn in UK infrastructure, direct investments and urban regeneration projects, and is committed to modernising Britain’s great cities as it aims to invest £15bn.

Cllr Huw Thomas, Leader of the Council, said: “This is great news for Cardiff. A lot of work has been going on behind the scenes to make this a reality, and the announcement today underlines the fact that Cardiff is a great place in which to work and live. Cardiff is going head to head with all the major cities around the UK as we look to attract jobs and investment and this announcement shows we are getting things right.

“I am particularly pleased with how this decision brings further momentum to the redevelopment of the area around Cardiff Central. I have been clear from the onset about my determination to deliver this redevelopment, including a new Bus Interchange, and this decision represents an important part of that jigsaw.

“One of the key pillars of our Capital Ambitions for Cardiff is to address the fact that too many of our people are living in poverty. Bringing job opportunities to the City, as we are doing today, is a critical part of the solution to this challenging issue.”

Rhydian Morris, JLL director of office agency, who advised the GPU, continued: “This deal, the largest office leasing transaction ever recorded in Cardiff and Wales, is a significant milestone not only for our Capital but the wider economy.

“We carried out an extensive selection process taking in to account wide ranging considerations including cost efficiency. A major factor was connection to the rest of the country – Central’s Square’s location, a stone’s throw from the city’s main train station, gives fantastic accessibility which helped sway our client’s ultimate decision.”

Cllr Russell Goodway, said: “This decision reinforces the confidence that there now is in Cardiff generally and in the Central Square development in particular. Businesses and employers are seeing the Council taking the right decisions and creating the right conditions for businesses to thrive. It’s important because it strengthens Cardiff’s role as the main economic driver in Wales and it means the city will not only serve as a great capital city for Wales but will be an important British city in a European context.

“This demonstrates that the decision of the Heather Joyce administration in 2013 to make a reality of the decades old ambition to rejuvenate the area in front of Cardiff Central Station is having precisely the transformative impact on the city centre we believed it would. And it’s only a start. The new administration is working hard to ensure the south side of the train station goes through a similar rejuvenation and we are working with developers to draw up plans for the Brains Brewery site and adjacent land that will create an exciting new district in its own right. Coupled with our plans for the redevelopment of Dumballs Road, Cardiff will get a truly impressive river frontage which will generate new experiences and opportunities.”

Minister for Government Resilience and Efficiency, Caroline Nokes, said: "This Government is committed to delivering the best quality public services in every corner of the UK, and today’s announcement is an important step towards that. This new lease is great news for Cardiff, and will deliver a range of benefits to people in Cardiff, from improved public space and transport to better access to the Principality Stadium from the station."

Welsh Secretary Alun Cairns, said: "The UK Government already has a significant footprint in Wales and I believe that basing several departments in a single office in the centre of Cardiff demonstrates the impact we can make through greater collaboration. This will not only lead to better integration between departments and create an obvious cost-saving for the taxpayer, but will also send a clear message that the UK Government is visible, accessible and helping to improve people’s lives in Wales."

The scheme was chosen ahead of two other shortlisted options – Rapport and Stoford’s two acre site covering a car park and offices on Bridge Street, and a JR Smart development site at John Street and Callaghan Square.

HMRC is expected to pay an inflation linked rent of £16 a sq ft pa on a 25 year lease with no break.

L&G emerging as GPU partner of choice

L&G is in talks to or has completed funding and investment deals for at least four of the Government Property Unit’s proposed UK office hubs, as it cements a position as the funding partner of choice for the government’s ongoing real estate efficiencies drive.

The Government Property Unit has been overseeing a major drive to reduce the cost of the government estate via its Hubs Programme, which sees government departments consolidated from various addresses into shared regional hubs. Over the past year it has been moving fast to reach agreements that are helping to buoy regional office markets.

Legal & General, the institutional real estate investment giant which has a particular focus on supporting regeneration and regional growth, has so far reached agreement to forward fund Salmon Harvester Properties’ 3 Glass Wharf on Avon Street in Bristol city centre’s Temple Quarter Enterprise Zone, where HMRC last year prelet 110,000 sq ft of offices, and, alongside partners Rightacres and Cardiff City council, L&G has secured the GPU for the headquarters at the Central Square regeneration scheme it is funding in the centre of the Welsh capital.

L&G has also entered exclusive talks to buy the 350,000 sq ft India Buildings in Liverpool from Shelborn Asset Management - where HMRC is set to lease around 250,000 sq ft – for around £125m.

And CoStar News understands L&G has also entered talks to forward fund the 240,000 sq ft of offices that GPU is in talks to prelet at Miller Developments’ Arena Central scheme in the centre of Birmingham.

L&G is in talks to buy the India Buildings on Water Street from Shelborn Asset Management for circa £125m, on condition that HMRC confirms plans to take around 250,000 sq ft of the 350,000 sq ft building. Shelborn is being represented by Knight Frank.

Place Northwest has reported that the acquisition would be the largest office investment seen in the northwest city.

CoStar News revealed in January that The Government Property Unit is in advanced talks to take 240,000 sq ft of offices at Miller Developments’ Arena Central scheme in central Birmingham. CoStar News understands L&G has entered talks to fund the development on condition the lease is completed.

Three developments in Birmingham city centre had been shortlisted for what is the first tranche of a larger office requirement. The requirement is on behalf of a number of government departments including HMRC.

The three shortlisted developments were: M&G and Ballymore’s Three Snowhill; Miller Developments’ Arena Central scheme; and Chatham Billingham’s Post & Mail site.

At the end of 2016 HMRC signed a 107,000 sq ft pre-let at Salmon Harvester Properties' 3 Glass Wharf in Bristol city centre - in a deal first revealed by CoStar News - with the new development to be forward funded by Legal & General .

Legal & General Investment Management Real Assets (LGIM Real Assets), on behalf of Legal & General Retirement, has agreed to forward fund the new scheme after HMRC pre-let the entire office element on a 25-year index linked lease.

It is understood HMRC is paying close to the £28 per sq ft tenants have paid at the adjoining 2 Glass Wharf. The tax authority is taking eight floors in the building, including secure basement parking, from 2019.

The scheme should be ready for HMRC to commence fit-out in 2018. HMRC anticipate the first members of staff will move in from 2019.

LGIM Real Assets has previously said that the mixture of top specifications, strong environmental credentials, and a long term agreement with the covenant strength of the government departments fits ideally with its investment strategy for matching its pension liabilities.

BNP Paribas Real Estate represented HMRC; Alder King advised Salmon Harvester on the letting and HSM advised on the investment and funding.

GPU's moves

The GPU has been making progress seeking regional hubs in other major regional cities.

Last year it first agreed a deal to lease the first 184,000 sq ft at Building 1, Ruskin Square, Croydon from Schroders and Stanhope with an option to take double that again at the site.

In July 2016 it agreed a deal to lease more than 500,000 sq ft of office space in Canary Wharf.

The GPU, advised by BNP Paribas Real Estate, agreed terms to take the space in 20 Cabot Square, E14 on a sublease from Barclays. The lease will run for 15 years.

HMRC also recently confirmed it has pre-let 180,000 sq ft at Artisan Real Estate’s New Waverley development for a new regional hub in Edinburgh.

In Leeds CoStar News has revealed that the Government Property Unit has selected MEPC, Hermes Investment Management and Canada Pension Plan Investment Board’s Wellington Place campus as the preferred destination for its circa 380,000 sq ft civil service hub requirement.

In Glasgow it has shortlisted three sites for a circa 250,000 sq ft office - HFD Group’s 177 Bothwell Street, BAM Property’s 300,000 sq ft Atlantic Square redevelopment, Drum Property Group’s planned regeneration of the Tradeston Street area on the banks of the Clyde.

In Manchester it has shortlisted five sites for a first circa 3 00,000 sq ft requirement with the overall requirement thought to be close to 900,000 sq ft. The sites are:

• NOMA - Hermes Investment Management and the Co-op's 20-acre mixed-use neighbourhood linking the central shopping district in Manchester with Manchester Arena, the Northern Quarter and the revamped station.

• Muse Developments, Legal & General and the Homes & Communities Agency's £650m New Bailey scheme

• The £750m Circle Square joint venture site between Select Property Group and Bruntwood

• Patrizia and Greater Manchester Property Venture Fund's First Street development

• U + I, LCR, Manchester City Council and Transport for Greater Manchester's £850m Mayfield development next to Piccadilly station

The GPU is advised by JLL. 

pnorman@costar.co.uk

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