AA u-turns on Basingstoke HQ prelet

By Paul Norman - Tuesday, September 05, 2017 15:00

The AA has u-turned on a planned prelet of a 60,000 sq ft headquarters building at Abstract Securities’ The Florence Building in Basingstoke a month after its chief executive left in contentious circumstances, CoStar News understands.

Market sources this week said The AA, originally The Automobile Association, which has been one of Basingstoke's key employers for more than 40 years, has decided to stay put at its long-term headquarters at Fanham House on the Basing View campus despite launching a requirement 12 months ago that was understood to be a response to the growing obsolescence of its offices.

In March 2016 Basingstoke and Deane Cabinet approved terms for the granting of a 999 year lease at the Basing View office campus site to Abstract Securities to enable the speculative development of a Grade A 60,000 sq ft office building.

The timescale for completion of the office, to be known as The Florence Building, is July 2018.

In April of this year CoStar News revealed that papers published on Basingstoke and Deane council’s website ahead of an 11 April Cabinet meeting confirmed the AA had been identified as an interested party and terms had been agreed for it to lease the entire building.

The papers also confirmed that during the course of 2015, the council, together with its joint venture development partner Muse, had extensive negotiations directly with the AA in relation to the preletting of a 30,000 sq ft office building elsewhere on Basing View but was unable to agree acceptable terms.

It said: “At the time the AA was known to have an active property requirement and through its retained advisers had launched a search that extended beyond the Borough and included locations such as Reading and Woking.”

As part of the agreed transaction the AA negotiated terms to surrender the lease of its long-term home at Basing View - Fanum House - with the deal contingent on the AA completing the lease, taking occupation of The Florence Building and undertaking the demolition of all structures on site.

Council officers wrote: “This will retain a key employer in the Borough and protect circa 750 high value jobs.”

Quoting rents at the Florence Building are around £26.50 per sq ft.

Fanum House is let to the AA Services Ltd on a 99 year lease from 01/04/1974 and has 56 years unexpired. The site would have remained within the council’s direct control and “hence capable of generating a ground rent income or a capital receipt”.

Market sources suggested the AA’s volte-face had followed the recent replacement of the group’s executive chairman, who had been driving the relocation.

Last month executive chairman Bob Mackenzie was “removed” by the board with immediate effect because of a “personal conduct-related matter”.

Non-executive chairman John Leach, who has been senior independent director at the AA since November 2014, has taken up the executive chairman role, while Expedia founder Simon Breakwell has been named as acting chief executive.

The group made the shock announcement as it also said performance in the first half of the year had been hit by "erratic workload patterns". 

Mark Glatman's Abstract Securities announced that its wholly owned subsidiary - Abstract (Basingstoke) Limited - had exchanged contracts on the purchase of the site for Basingstoke town centre's first large-scale speculative office development in 15 years in July of last year.

The development is one of the key elements in the regeneration of Basingstoke’s central business district.

Abstract said it would build what it termed its next “uncompromising value”, speculative office development providing 60,000 sq ft at Basing View, the central office core for the town and five minutes’ walk from Basingstoke Railway Station.TP Bennett is the architect.

Savills and RARE advise Abstract on The Florence Building and the building is now back on the market for lease.

Established in April 2000 by Mark Glatman, the Abstract Group of companies has been notable for delivering a string of successful office developments by delivering prime offices in a cost effective way that has enabled rents to come in under other adjacent prime office buildings.

The Leonardo Building at Manor Royal just south of Gatwick Airport is a four storey 110,545 sq ft speculative office building that completed in December 2015. The entire building was prelet to Virgin Atlantic Airways in May 2015 and the resultant investment sold to F&C Commercial Property trust in July 2015 for £45.342m.

Renaissance, Croydon provides 100,000 sq ft of 'Grade A' office accommodation comprising five floors offering flexible floor plates of 20,000 sq. ft. Completed in late 2013 the offices were fully let within 10 months of completion and the completed investment sold to M&G UK Property Fund.

St Vincent Plaza, Glasgow, a 170,000 sq ft speculative ‘Grade A’ office space completed in late 2015. Global professional services firm KPMG has taken a lease on three upper floors with Whyte and Mackay and Registers of Scotland also taking floors four and three respectively. The latest tenants to sign are Wood Group and Mott MacDonald, taking it to 75% let.

The first phase of Aberdeen International Business Park was designed to accommodate around 2,400 employees with 1,200 car parking spaces and besides a variety of catering options, includes a gym, a sports hall, 2 squash courts, a medical facility, a nursery/crèche and a shop. Abstract agreed Scotland's biggest letting deal with the Norwegian company Aker Solutions on 335,000 sq ft of office space in Summer 2014. The resultant investment was sold to Legal & General in October 2014 for a price in excess of £127m making this the second largest investment deal in Scotland for 2014.

Given the recent letting successes in Glasgow it is thought that Abstract will explore the opportunity to sell at a time when markets are starved of well let new office stock.

Chris Johns, CoStar analyst, said: "The North Hampshire submarket boasts a strong local economy, owing to its connectivity to London and its diverse occupier market. However, the area has lost a number of large occupiers over recent quarters as businesses have vacated older stock for better alternatives elsewhere. For example, BMW Finance vacated Europa House in Hook after expanding its existing operations in Slough, Thales relocated from Mountbatten House in Basingstoke to Green Park in Reading, and Barclays moved out of Churchill Plaza, again in Basingstoke, ahead of the building being converted to residential. As a result the vacancy rate has been on an upward trend, rising around 260 basis points since the end of 2015 to sit at 12.4% as of Q2 2017. The Florence Building will be Basingstoke’s first grade A delivery since 2007, so is likely to attract plenty of attention from local occupiers looking to upgrade their space - as was the case with the AA."

CoStar's latest market report for the area can be found here.


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