Values between residential and commercial are ‘poles apart’ in York

Two property experts with expertise in office and residential developments shared their views on what is happening in the York marketplace at present and what changes are needed to ensure the city’s economic success.

Speaking at TheBusinessDesk.com’s York Property Professionals Lunch on Thursday, Nick Moody, founding partner of development firm Newby, and CBRE senior director Jonathan Shires, shared their views on the contrast between residential and commercial development in the historic city.

Sponsored by Together Money, the event at The Principal in York was attended by more than 70 delegates.

Shires said the main challenge for the commercial developers was competing against space for residential developments. He said: “Traditional office developers saw no market and therefore thought there was no demand. If there is ‘no market and no demand’, they won’t go and do it. However, there is very definitely demand in York but unless you build a product it never comes through.”

Values between residential and commercial are “just poles apart,” added Shires – exacerbating the issue.

“If we were looking at a brand new office building, with institutional funding, values would be at between £300-£350 per sq ft,” he explained.

Whereas residential would be between £450-£500 per sq ft, added Moody.

“It just does not make it viable at present to refurbish building into office space in York, which I think is a real shame,” added Shires.

However, the two agreed that one sector could complement the other, as “end users” for residential space would be attracted to the city by the big companies being able to move into the area.

Shires added: “York is already on people’s radars – including the big, big corporate companies – but there is never is any office space up here. It is on people’s radars because of the lifestyle up here in Yorkshire, its tourism; people know it well and it has fantastic hotels. Also, it is the magic ‘under two hours’ to London.

“It has become a really attractive city. The problem is trying to find someone to spec fund an office building and bring the sorts of sites we are talking about forward.”

Moody said the firm picked York because of “where it is and what it is doing.” The firm predominately looks at old buildings to refurbish them and are able to get funding for such schemes through challenger banks as they are much more “fleet of foot” than traditional banks, said Moody.

He added: “York has fantastic values, it is great place. There is a history behind it. For us, we look at brownfield and regeneration. The fact it’s constrained by greenbelt means the inner city is more interesting. We can go in there and look at old buildings such as Cocoa House or Rydale and  that really works.”

The pair said that as the population was rising, there was absolutely a need for more housing and office space to support the economic success of the city and beyond.

Moody said permitted development rights give residential developers a “head start.” He added: “In the residential situation, if you were to take an office building and use permitted development rights to create affordable housing, it becomes a fundable and profitable project. It makes residential a much better prospect than building commercial space and is another example of residential pushing office out.”

Shires said that this was clear in take-up statistics, adding that in the last three years, York’s office market had seen a 66% take up out of town and 34% in town. When comparing those figures to all of the regional cities, like Leeds and Sheffield, it is the opposite, he said.

Moody said that the planning process overall is generally not fit for purpose. But in York, the firm has been working specifically with a planning officer and the trust has built up. He suggested that the planning process could be changed so that officers were assigned to developers, in order to ensure a swift process where all parties understood what was being delivered and the quality of developments.

He said it was much easier to change the use of buildings to bring them back. “We are very excited about Rydale. We had to start on site while putting planning in. The joy is being able to turn around when it’s finished and it’s unwrapped but good internals and a great facade.”

Moody also shared that Newby are looking to develop their first HMO (Houses in Multiple Occupation), which will be in Ripon. He said that this would be a “high-class” scheme – using a model used in London. He has aspirations to roll similar schemes out in York and Leeds.

Moody said it was incredibly important to Newby to “stay close to what we know” in that they feel they have the expertise in the York and North Yorkshire marketplace. “If you don’t know the delicacies of the marketplace, you can get yourself into trouble,” he reflected.

Both Moody and Shires commented about always needing to understand the occupier’s changing needs. Tech is playing a huge part of both residential and commercial developments, with the need to install fast wi-fi in any building; but in the commercial areas needing to also factor in breakout space.

Moody said the markets were not mature enough yet for residential space to include breakout spaces at the moment in Yorkshire, plus it was not a financially viable option.

Shires added: “Tech is changing our industry. It didn’t use to change but not our industry is changing every three to five years now. There is always something new coming into the marketplace – smart buildings are the latest.”