PropertyJan 30 2013

Retail regeneration X

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These opportunities have arisen following big pharma company Sanofi’s announcement in 2009 that it would cease production at its site in Dagenham later this year.

The area is no stranger to industrial shock, but factory closures typically result in land put up for sale and large-scale redundancy. Sanofi has chosen a different route after its Dagenham-based managers decided that they wanted to leave a genuine legacy for the area that could also offer a chance for investment in a quality commercial estate and science park.

The park, called Businesseast, will take in most of the 108-acre (44 ha) Sanofi site. Rather than building facilities that need long-term tenants to recoup construction costs, the company plans to retain as many of its existing premises as possible. The hope is that this will attract businesses able to repurpose them with flexible leases made possible by the smaller outlay, and pay-as-you-go support services.

Sanofi needed strong evidence that this unusual model of real estate management could provide a return before taking the idea forward. Enter Heath Business and Technical Park, in Runcorn, Cheshire.

More than a decade ago, chemicals giant Imperial Chemical Industries had planned to close its divisional headquarters at the Heath, leaving behind its offices and laboratories. The managers who ran them saw an opportunity and formed Site Operations Group in order to buy the Heath and turn it into a 60-acre (24 ha) science and business park.

The regeneration proved so successful – the Heath is home to some 150 companies today – that SOG decided to share its expertise. The company calls its approach to redeveloping vacated industrial sites Fusion, and it is working with Sanofi to apply the model to Businesseast.

Sanofi has already secured occupants for its Dagenham site with SOG’s help. An unnamed IT company is looking to build a sizeable data centre there. The local health authority is said to be considering building a clinic and, subject to planning permission, Sainsbury’s has already signed a deal to buy 10 acres (4 ha) of Businesseast for a new superstore.

The jewel in the crown for Sanofi, though, would be success with the Businesseast Science and Technology Park (BEST), focused at its existing premises.

These are accredited by the US and UK medicine regulators the FDA and the MHRA, and go through regular inspections and upgrades. This is a powerful draw for some prospective tenants, who could avoid the lengthy and expensive process of getting new premises approved.

Tim Metson, surveyor and property adviser for SOG, is working on the Businesseast project. He said: “Companies have been really interested in that aspect of the site. There’s no risk to them in achieving it because the process is already complete. A lot of the staff here are used to that quality control process, so their skills are also attractive.

“Without mentioning names [as negotiations are ongoing], contract manufacturers are interested because we have a very good sterile building, of about 100,000 sq ft, ready to go with full approvals. We’ve got pharmaceutical companies looking at it for the same reasons, as well as other linked-in industries.”

With Sanofi’s tight schedule, the funds to prepare BEST for new occupants are needed soon. The local authority, Barking and Dagenham Council, last year applied on Sanofi’s behalf for a £12m investment from the London Growth Fund, a revolving loan scheme administered by the Greater London Authority. Mr Metson said: “A couple of companies have given us letters of intent to say that they are seriously interested in coming in if funding is approved.”

He added that some academic institutions had also expressed interest in the site, including the University of East London, Queen Mary University of London, and recently University College London.

Professor Neville Punchard, the dean of UEL’s School of Health, Sport and Bioscience, said: “Given the relentless march of London eastwards, BEST will naturally form part of the so-called Golden Triangle.

“We’ve had students from industries based on the site study at UEL when we were North East London Polytechnic, as well as having students on industrial placement here. We would look forward to similar sorts of opportunities with [incoming businesses] and are ideally placed to support industries and staff on the site, and form research and development partnerships.”

Although the LGF decision is yet to be made, all indications – including a written answer from the Mayor of London – are that the application will be approved. If so, the LGF will buy the BEST premises from Sanofi and invest revenue from its lease in regeneration elsewhere.

Science parks typically take five years to show that they are viable. After that happens at BEST, the LGF might consider selling to the private sector. Mr Metson said: “Specialist markets – and I would classify Businesseast as one of those – already have their appeals to certain sectors. But I think if you’re a pension company trying to spread the risk of your investments, getting into this type of market would be a wise approach, as yields on such facilities are good.

“A US real estate investment trust has recently purchased a science park elsewhere in the country. They recognised that putting their money into the UK was a good thing.

“And property offering flexible leases is becoming attractive to investors because void rates, a particular problem in the traditional property market, are lower.”

Politicians as well as business leaders are acknowledging the benefits of such developments. Jon Cruddas is MP for Dagenham and Rainham, the constituency in which Businesseast sits. He said: “Bringing new employers to the area and retaining jobs is very important for the local community. There should be some interesting opportunities for companies choosing Businesseast as a base, not least a pool of skilled and dedicated workers.”

Retaining such staff is a core part of the Fusion process. Once construction is complete, the Sainsbury’s development alone will employ as many people as currently work on the site, at around 400. But Mark Bass, land development and partnership leader for Sanofi, believes he and his colleagues will feel that the company has failed if it leaves without securing further job opportunities. It wants at least five times that many workers at Businesseast, of all skill levels.

Mr Bass said: “The supermarket deal is an enabler, as it brings in capital, but the cornerstone is the science park. Putting buildings on empty land brings more jobs, particularly the data centre that would could create up to 1,000 over 10 years. But companies can come now, grow and bring further future employment.”

A 2,000-job target should be achievable. With a footprint of around half that of Businesseast, the Heath currently has 1,700 workers on-site. And the knowledge and training of Sanofi’s workforce should be a draw for companies, particularly with skill-matching on offer.

Mr Metson said: “When an appropriate enquiry comes in, we look at staff through Sanofi’s excellent HR process and see where their skills might fit. When companies ask, who have you got here, we’re able to tell them we have these types of skills. That’s very attractive for them.”

Another appealing aspect of Businesseast is the site’s good communications, including a District Line Underground station and a major arterial road, the A13, two miles away that links directly to the M25 and the M11 via the A406 North Circular Road.

For air travel, the road and rail networks put London City Airport within easy reach. Stansted is relatively nearby, with Heathrow, Gatwick and Southend Airports also fairly accessible.

Mr Bass said: “One of the pluses of being in east London is that we’re close to a major river crossing [at Dartford]. There are major freight forwarding companies just down the road, too. We’ve formed links with local service suppliers and hope new occupiers would do the same. We’d give them the contacts we’ve used in the past.”

Mr Bass had ambitious goals when he and his colleagues began the Businesseast project: “We wanted to find re-employment opportunities for staff, get a fair return for the land – probably a bit more than we thought, which is great – and regenerate the site, which benefits everybody.

“There’s a real win-win in the calculation. That’s a trite phrase, but by doing the right thing, the company will be better off.”

With investment from big technology companies, leading retailers, and probably the London Growth Fund too, it seems Sanofi will not be alone in that.

Paul Gilham is a freelance journalist

Key points

* A major regeneration scheme in east London could present retail and Sipp investors with some opportunities to get involved with an innovative approach to industrial change.

* Sanofi has already secured occupants for its Dagenham site.

* Another appealing aspect of Businesseast is the site’s good communications.