McKay Securities – Southern Powerhouse interview

Continuing importance of investment in rail infrastructure in the South

A two-acre pit, which currently accommodates a few JCBs and hundreds of tonnes worth of scalpings, is hoping to be transformed into the south east’s new front door. Some 1200 new homes, 600,000sqft of office space and the creation of 6000 new jobs have been promised for the Station Hill development in Reading. Simon Perkins, chief executive of McKay Securities, sees these plans as a great example of incoming opportunity for the area. “Developments like this will have a big impact on the region,” says Perkins, “London and the south east are the areas where business wants to be.”

McKay Securities specialise in the development, refurbishment and management of commercial property. They are the only real estate investment trust (REIT) operating exclusively in London and the south eastern markets, with a current portfolio value of £492million. “The underlying south eastern market is one of a study churn of business,” Perkins explains, “London and the south east has many similarities, including the discerning nature of the occupier. Quality product attracts better tenants, and operating in this region allows us to get better value out of what we’re doing.”

Considering how the position of the south’s economy will be sustained, Perkins praises the development of selective infrastructure initiatives which he believes will improve connectivity of southern markets. These include the western rail approach to Heathrow (WRAtH), Network Rail’s plans to create a 6.5km rail link allowing passengers to travel directly to the airport from Reading, Twyford, Maidenhead and Slough. “I can sense the business communities in these areas are behind it,” Perkins explains, “Reading to Heathrow in fifteen minutes would really make a difference.”

Perkins also notes that further modernisation of the line at Newbury, extending the Great Western electrification scheme further west, is another indicator of how investment and upgrades to infrastructure will have positive knock-on effects for the region. “These improvements to western rail access really give a strong message – if they gain support – that the business needs of the south-east are being looked after,” he explains, “they are developing the overriding connectivity of the region.”

Perkins believes Crossrail will also allow for more ‘genuinely connected markets’, helping bring the south east more in line and accessible to London. The new underground line, to be known as the Elizabeth line upon completion, will mean the journey from Paddington to Liverpool Street will be reduced to 14 minutes without a need to change trains. “Currently the biggest delay to get from Reading to the City is the change at Paddington. The journey takes about an hour and a half overall,” Perkins explains. “With Crossrail it will be closer to an hour. Removing the physical barrier of having to change at Paddington, and just being able to use an underground card to get into central London, will make the journey from outer markets so much easier.”

While Perkins praises these regional infrastructural developments, he explains there are limits to the office and industrial space available for both occupation and refurbishment in the south east at present. “The south east office market, the largest sector in our portfolio, is currently experiencing its lowest levels of both vacancy and supply for ten years; the vacancy rate for new floor space is currently at an historic low,” he explains, “The supply of new stock shows no signs of alleviating these issues, and the investment property databank (IPD) index – essentially a database of buildings – shows that over 50% of building designs are now older than twenty-five years in the south east.”

Perkins describes the design or service life of a building – the period of use as intended by the designer until it needs replacement – is generally held to be twenty-five years at most. This is because buildings of this age and older can become problematic: “Obsolescence in built stock is a real issue,” he says, “In the space of twenty-five years a building’s air conditioning, glazing and other services can become dated. But when occupiers have the opportunity to renew a lease or move, they typically renew; kicking the can down the road. The opportunity to get in and refurbish these buildings can therefore be difficult in our region.”

But Perkins also explains that some old office space is not always suitable or cost-effective for redevelopment. In making these spaces available for conversion to residential use, however, these issues can be alleviated. “Permitted development rights allowing buildings to be converted from an old office or industrial space into residential accommodation has been a good thing in that it’s taken out of the market older stock which has been hanging around in the region.” He elucidates: “By being able to change the use of a building without full planning applications and by having a reduced set of requirements, the principle of a change in use is no longer challenged. This means that spaces which have been unsuitable for redevelopment into offices or industrial space have been useful for something else, which is always a good thing.” 

On the subject of the increasing costs of property in London, Perkins reasserts the importance of connectivity across the south east. “Residential property is generally 30% cheaper out here in Reading than in it is in London. If travel is easy, businesses can see the benefit of having offices in the fringe. It’s a win-win.” But while premises outside of London may seem increasingly appealing for businesses on paper, it appears a presence in the capital is still worth the extra costs, Perkins reveals. “Despite many reports stating the take-up of office space in central London was expected to slow down, it is currently at its strongest level in recent years. Take-up in central London defied all the odds – it just kept going.”

What are McKay’s aspirations for the future? “We want to increase our market capitalization from £250million to £500million – but in our own way and in our own time,” says Perkins. He adds: “We also want to improve confidence in the occupational market, so we have to be alert to the occupational requirements. It’s stating the obvious, but without a tenant we don’t have a business.” He explains the importance of having a regional focus to achieve these aims: “Over a third of all UK businesses are situated in London and the south east, so operating in the most dynamic region of the UK has been key for our development. A regional voice will always be central to what we do.”

 

 

 

 

 

 

 

 

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