August 29, 2014
Opus North aims to develop the first speculative office building in Leeds city centre for years. By Simon Creasey.
Andrew Duncan is a man on a mission. His aim? To develop the first speculative office building in Leeds city centre for years. While some people might view this as a risky endeavour, Opus North director Duncan is confident the gamble willpay off.
“Leeds has about 12m sq ft of office stock, of which there is only about 250,000 sq ft of grade-A available,” he says. “But there has been significant take-up recently – the average annual take-up is 400,000 sq ft to 450,000 sq ft – so you have a unique imbalance of supply and demand that I have not seen before.”
It is fair to say that there is not a lot that Duncan has not witnessed in the Leeds office market. He has been a fixture on the city’s property scene since he began his career at Knight Frank & Rutley’s Leeds office in the 1980s. From there, he joined Elliott Son & Boyton, which was bought out by Chesterton in the late 1980s. After the takeover, Duncan left to set up a surveying company with former colleagues, including Richard Smith.
Grenville Smith & Duncan (GSD), which was founded in the early 1990s, became an influential player in the city’s office scene, with GSD “pretty much involved in every significant office scheme in Leeds”, either acting on behalf of developers or occupiers.
But that wasn’t enough for Smith and Duncan. So when the opportunity arose for them to sell their stake in the business, Duncan decided to switch sides to move into development.
In 1999, he set up Opus Land with Smith. Developers with an unproven track record would struggle to attract funding, but the pair had an ace up their sleeves – Ray Palmer, who had helped to build the surveying firm Lambert Smith Hampton from scratch, before branching out to launch fund manager Palmer Capital.
“We knew Ray from our GSD days, as we used to do an awful lot of management work for him across various buildings and portfolios,” recalls Duncan. “We knew what we wanted to do and we knew that we needed to find a backer. So we went to see him and told him about our ideas – and he said ‘yes’. He put up the cash, we put in the ideas and it ran from there. That is how it was born and that is how we have run it since.”
That is not to say that there haven’t been bumps along the way. When everything “hit the buffers” in 2008, they decided to split the company, “so that I would run the northern side of things and Richard would run the Midlands”.
The ownership of Opus North is split between Duncan, who owns two-thirds of the shareholdings, and Palmer, who is “hands-on, but not in an intrusive way”, he adds. “If I want some advice, I know that I can pick up the phone to Ray, and he is always there. After a few years, it becomes a bit like a marriage — you get used to how each other works.”
Based on Opus North’s track record, it is clear that the partnership has discovered the secret to marital bliss. Its strategy was, in some ways, inadvertently crystallised by the recession, when all the speculative office and industrial units the company had previously focused on ground to a halt.
“We could see that this approach wasn’t going to work going forward, so we took the conscious decision to target occupiers that were taking space at the time – discount retailers, discounter hoteliers, anything in the discount space basically,” says Duncan. “It’s a strategy that has proved quite successful for us.”
Another key strand to the strategy is to reduce the risk exposure as much as possible, he adds. “We like to secure the sites, secure the operators and then we push through the planning.”
It is a template that has been applied to several retail schemes Opus North is currently working up in the north of England. In Skipton, north Yorkshire, planning approval is expected next month for a £6.5m retail park, featuring a Wickes and a Pets At Home. Also in Yorkshire, Opus North plans to transform a derelict four-acre site in Armley into a retail park, with Lidl, Iceland and B&M already on board.
Further north, Duncan has a four-acre site in Darlington for which he has signed up Aldi, Iceland, Poundland and KFC, all conditional on planning.
“They all tend to follow a bit of a pattern,” says Duncan. “They are two- to four-acre sites with good main road frontage and anchored by a significant tenant – and we add others around it.”
As the company name suggests, the other prerequisite is that the sites are in the north of England and not too far from Opus North’s Ilkley headquarters.
“We are basically looking at things within a couple of hours of the office,” says Duncan. “That gets us to the Scottish borders and from coast to coast, which is where our knowledge base is. Outside of that, we start to become reliant on other people.”
Duncan has broken this geographic boundary to undertake a couple of retail and leisure-led development projects in Wales for Premier Inn, with which the company has a strong relationship.
“We have now got a reasonable reputation with a lot of occupiers, so we get quite a lot of feedback from them about where they want to be and what geographic gaps they want plugging,” he says. “They will tell us what towns they would like to be represented in and we try to mix and match.”
He admits the company has dropped into a bit of a formulaic development programme as a result of the number of retail parks on its books, but adds it is willing to consider other things.
“We are looking at other areas now: industrial units, offices – it is hard to be specific. The private-rented sector is something that we have never done before, but it seems to be an asset class that is coming up fast. As for resi, we would do only it if it was part of something else. We wouldn’t build housing in fields, that is not our bag. But we would consider looking at greenfield or brownfield sites where we take them through the planning process then sell them to housebuilders. Ultimately, we follow deals. People bring us deals and if they are interesting we will have a look.”
Arguably, the most interesting and biggest project on Opus North’s books at the moment is the former 10-acre Frontierland fairground site in Morecambe Bay. The £17m retail and leisure park is a joint venture with supermarket Morrisons, which owns the land. Duncan says 60%-70% of the tenants have already been secured, with planning approval expected next month.
“The local community is right behind this. We got 97% support from the public consultation, which is overwhelming. If we get planning next month, we should be able to start on site early next year.”
Once built-out and fully occupied, the scheme will be traded, as will everything else in the development pipeline. “We don’t keep anything in the long-term,” says Duncan.
True to form, the company recently offloaded a former BT office and exchange building in Chester. “We bought it as a vacant site, refurbished the offices and brought in tenants, added a Travelodge hotel and some bars, restaurants and coffee shops, and then we sold it out to investment. It took a couple of years longer to turn around than the initial business plan because of the recession, but we can’t moan too much because we did very well out of it.”
Another deal that Opus North has done particularly well out of is the Bourse office building, which is in the heart of Leeds city centre on Boar Lane. Duncan has an affinity with the 50,000 sq ft building that stretches back to his agency days.
“The building is fantastic – I love it,” he says. “That is why we put the offices of Grenville Smith & Duncan in there. Then, as a developer investor, I ended up buying it out of receivership three years ago.”
The Bourse had been left to rot, but Duncan saw potential. “Trinity Leeds shopping centre was about to start on-site opposite the building, so the deal made perfect sense to me,” he recalls. “There was an opportunity to take this under-loved asset, sort it out and reposition it in an improving market.”
Only 5,000 sq ft of space is available in the Bourse and Duncan says the remaining suites are attracting considerable interest. That brings us back to his unsated desire to speculatively build an office in the city.
“I never thought I would see it again in my lifetime, but we are now strongly considering speculative office development in Leeds,” he says.
“The Leeds office market is what I know best, so I would love to do it. I have even got a site in mind. I just need to convince the current owner to sell it to me.”
Given Duncan’s track record and eye for a deal, you wouldn’t bet against his powers of persuasion winning out in the end.
A decision on plans to turn a 10-acre site into a 100,000 sq ft complex of shops, a hotel, restaurants and a pub, adjacent to a Morrisons supermarket and Morecambe promenade, is anticipated next month.
Darlington, County Durham:
Planning has been submitted for a £10m retail park on Albert Road, which should be open by the end of 2015.
Skipton, north Yorkshire:
Planning approval is expected next month. Opus North is working on the project in conjunction with manufacturing company Guyson.
Author: Simon Creasey, Property Week