UK: RELOCATION 4 - DANGERS OF DIY. - Property development can be a complex and litigious business which is best left to the professionals.

by Erik Brown.
Last Updated: 31 Aug 2010

Property development can be a complex and litigious business which is best left to the professionals.

The temptation for major companies to develop their own headquarters buildings is stronger now than it has been for years. Construction costs have fallen, professional fees have been slashed and land set aside for property projects in the 1980s can now be bought at a significant discount from distressed developers - or their banks.

But for any company considering the do-it-yourself option, there is a word of advice from those property companies that have survived the crash: don't.

Setting to one side for a while the accusations of self-interest that will follow this injunction, there is evidence that non-property companies tempted into development in the past have got it wrong - and sometimes very badly wrong. For fairly obvious reasons, they tend not to talk about it afterwards. And any suggestion of managerial incompetence that finds its way into print is likely to lead to litigation, or - at the very least - a fairly hefty rap across the knuckles. So journalists tend not to talk much about it either.

But anecdotes about those firms that built very expensive buildings they subsequently didn't need and then couldn't get rid of are among the property industry's favourite tales. And research carried out for Stanhope Properties by DEGW suggests that the chances of success are, in fact, probably limited.

A survey of 21 companies that had relocated revealed that most of them had made mistakes. Many of the mistakes resulted from weaknesses in the management of the professional team put in charge of the project; some were born out of a fundamental misunderstanding of the development process. Stanhope's conclusion was that professional development should be left to a professional developer.

This too clearly has a large element of self-interest in it, but it also contains a good deal of truth. Excellence in property development is obviously the result of painstaking, and often tedious, attention to detail and a firm hand in a process that will otherwise result in expensive claim and counter-claim. It may be overstating the case to suggest that the construction industry makes its money in the courts, but it is certainly a more complex and litigious business than it appears from the outside.

Developers who want to be taken seriously in this matter appreciate that they have an uphill struggle. The speculative development booms of the past have placed the institutional investor above the end user in the hierarchy of customers. The results have not always been very good for the corporate occupier and have tarnished the image of all developers, good and bad. That may now be changing.

'I think there will be developers out there who will still put up fairly poor speculative buildings and get away with it,' says John O'Halloran, development director of Lynton, 'but the risks they are running will be huge. I think the developers of the future - the good ones - are going to be very much more occupier focused.'

Lynton, which was taken over by BAA in 1988, would like to see itself as one of the new-breed developers and O'Halloran talks amiably about standardisation of building product, flexibility in use, economies in building costs and user efficiency.

When Lynton won the contract to build British Airways' centre for combined operations (CCO) at London's Heathrow, it commissioned a research project that compared the cost of the UK building with a similar construction project in North Carolina in the US. The result was startling: the US building cost 32% less. And Lynton's parent, BAA, concluded that savings could be achieved by 'greater standardisation of components and processes, better preconstruction management and by producing buildings that are more in line with occupier requirements'.

Research by Lynton's competitor Stanhope carries a faint echo of the same argument: the less you know about the process, the more it is going to cost you. And O'Halloran certainly agrees that, 'The days when a company could tailor-make a building for itself have gone. In all of our discussions with people, the need for flexibility is uppermost in people's minds.' Even the CCO - which has to cater for 1,000 permanent BA staff and 10,000 itinerant crew members - has flexibility built in. Designed by leading architect Nicholas Grimshaw, it has been constructed as three separate but interlinked buildings. It brings flight and cabin crews together on their way to their aircraft for the first time - previously they mustered at separate buildings. And British Airways has calculated efficiency savings of £1 million a year as a direct result of the merger of seven buildings into the one CCO.

Find this article useful?

Get more great articles like this in your inbox every lunchtime