David Quinn | Writer, journalist and blogger based in Manchester

Not an alien concept
Estates Gazette
23/05/2009

Going boldly: A vast speculative scheme is being built – and the developers are optimistic. How on earth will the figures for Maxim add up? asks David Quinn

Mr Spock would probably describe it as highly illogical. Bringing forward more than 750,000 sq ft of offices in a single massive lump, just as the market plummets headlong into a suffocating black hole, may not be a great idea.

Not so, according to the developer behind Maxim at Eurocentral in Lanarkshire – TAL CPT Land Development Partnership – which is determined to boldly go where no developer has gone before by doing just that.

There can be few, if any, occasions during the elongated boom of the past 15 years when a development such as Maxim has taken shape. Ten office buildings have shot up over the past year, and a visit to the development site 11 miles east of Glasgow, which was formerly occupied by Chunghwa Picture Tubes, is the only way to appreciate its vast scale.

On one side of the long, wide boulevard to be known as Parklands Avenue, a single building of 186,500 sq ft dominates the view, while five blocks of 58,600 sq ft each grab the attention on the other. All will be completed later this year.

According to Karen Campbell, chief executive at Maxim, developing the whole lot in one go allows TAL CPT- a syndicate of private investors formed by Tritax Assets thatpresold the scheme for £330m to Eurocentral Enterprise Zone Trust in 2007- to benefit from an economy of scale.

Curiously, Campbell exhibits no nervousness about the project’s prospects in view of the faltering occupier market. Indeed, she believes the timing of the recession may prove fortuitous. This is because of the financial incentives that Maxim is able to offer, which she saysare becoming increasingly important in occupiers’ decisions.

“We are well placed to deliver into a recessionary market. The financial aspects of a deal are at the top of everyone’s agenda as occupiers seek deals that are cost neutral and have no capital expenditure, with incentives that can go towards break penalties and dilapidations,” she says.

“It’s not just a property deal, it’s a financial deal,” she adds. “It excites the property director as well as the financial director.”

Incentives are likely to be pitched at up to double the level for prime new-build offices in central Glasgow, which, in some cases, have tipped beyond three years on a 15-year lease. Rents will be set at £17 per sq ft – a discount of around 40% compared with similar city centre space.

The incentives are paid for thanks to the phenomenon of “golden contracts”. These were put in place prior to the original expiration of the former Lanarkshire Enterprise Zone in 2003, and meant that site owner Eurocentral EZ Trust could continue to claim EZ allowances when it bought the site from TAL CPT. The allowances will last until 2011 and provide a long rental guarantee sum, which can be accessed by the developer to provide tenant incentives.

“The whole project was sold by the developer to the trust in April 2007, so there is no development funding or investment sale risk attached to the project,” explains Doug Smith, Scotland chairman of CB Richard Ellis, which is advising on the scheme alongside Ryden and Jones Lang LaSalle. “The terms of the sale reflected the stronger market conditions at that time, which means a larger amount is available for the developer to distribute as incentives.”

Feeling of disbelief

According to some agents, Maxim’s incentive packages could draw occupiers from Glasgow city centre, although the development is targeting national and international firms.

“If you are in an older, multilet building in the city centre, the ability to make a cost-neutral move to a new building of this sort of quality means that it has to be on the agenda,” says Campbell.

Agents in Glasgow are reluctant to prejudge Maxim, although a sense of incredulity surrounds the idea that the development is welltimed. One agent says: “There is obviously no market to sustain that level of development. The out-of-town market has been really struggling for enquiries. But it would be better for everyone if Maxim couldsecure a big deal to get us out of the gloom.”

Maxim appears to be focusing on high-quality design, which it believes will prove attractive to occupiers. The site is linear and features so-called “leisure zones”, with running tracks and even a putting greenalong the avenue between the buildings.

The western end of the site will house a restaurant, deli, convenience store and nursery. The focus of daytime activity will be Building 3, calledthe Hub, which contains 15,500 sq ft of ground-floor retail space.

David Hunter, who was hired as chairman of Maxim last year, is aiming to replicate the feel of Chiswick Park in west London, where he was involved as managing director of Aberdeen Property Investors. Broadgate Estates, the property manager whose portfolio includes Liverpool One and Birmingham’s Snow Hill, has also been brought on board.

“Occupiers are looking at both financial and design aspects,” says Hunter. “At board level, companies like the terms on offer, but they also like the feel of the thing.”

He adds: “One school of thought says this is not a time one would choose to have 750,000 sq ft of office space coming to market. But the supply pipeline generally is drying up, so we will have the advantage of being here and being built.”

Whether Maxim will entice a slew of occupiers is impossible to say. Glasgow agents are talking up demand, but the fact remains that deals so far this year have been scarce (see p71).

Nonetheless, Campbell says she expects to be making announcements on office lettings prior to the scheme’s completion later this year. Deals with serviced office, restaurant and deli operators are said to be in the offing.

Another of Mr Spock’s favourite phrases was “Live long and prosper”. Maxim’s investors will be hoping the saying rings true.

Key facts

Tags: glasgow, maxim, offices