MPC shortlisted for Insider Property Award 2023

PROPERTY DEAL OF THE YEAR:

US-based Unicorn company Pax8, which has in just a few years created a marketplace for IT professionals to buy cloud-based technology products, initially set up their European HQ in Bristol (Sept 2020), with a soft-landing mid pandemic in a small suite in serviced offices at Runway East through Morton Property Consultants (MPC). Subsequently MPC introduced them to Invest in Bristol and Bath (IBB) who then worked together with PAX8, providing both private and public support to secure their long term inward investment into the city.

Pax8’s growth from that point was so rapid, with projected further growth to over 150 – 220 heads in the next few years, that they required substantially larger accommodation.

Morton Property Consultants then co-ordinated and led the subsequent property search, identifying No2 The Distillery as an ideal office in terms of size of space, (24,375 sq ft), quality of Grade A new accommodation, ESG credentials, flexibility both physically and contractually, within a high profile building in a prime location close to the mainline railway station at Temple Meads.

The deal kick started the occupation of 92,000 sq ft Distillery development which has revitalized the whole of Avon Street.

There are several significant ways in which this deal shows an innovative way forward for the Bristol property market, especially as the city continues to grow in importance – nationally and internationally – within the creative and tech sector, and attract new high growth inward investors as well as foster the future for indigenous businesses.

Firstly, securing the inward investment of Pax8 was achieved through a long period of close collaborative work (much of it during the Covid lockdown) between Morton Property Consultants (who received and acted upon the initial lead) and IBB, who went to extreme lengths to smooth the path of the company’s entry into the UK – including working closely with various Government departments to help Pax8 make important contacts and overcome bureaucratic barriers.

Secondly, this was one of the first times that a “Cat A+” deal of this size had been struck within the city (with the fit-out funded through additional rental terms rather than an upfront payment), and it is by far the highest profile one to date. This presents a template for many tenants on a sharp growth trajectory to occupy space in some of our newest buildings (which invariably require a fit-out prior to occupation), and for landlords to attract high growth tenants.

While the initial requirement was for 13,887 sq ft, based on a 10 year lease with tenant break clauses in year five and three, the rapid growth of the business during the legal process lead to an increased requirement of 24,375 sq ft based on a 10 year lease with a 5 year break on the brand-new building. The open market rent level was agreeable to Pax8, however the projected cost of the fit out would have meant significant upfront capital expenditure, while they preferred to use their capital reserves to recruit new personnel and grow the business.

To meet that requirement, a separate agreement was negotiated with Royal London Asset Management, through Morton Property Consultants, taking out one of the breaks at year three, and in return the landlord would complete the “Cat A+” fit out to the tenant’s design but at the landlord’s expense, with the cost to be repaid in the form of an additional “CAT B” rent to be paid over the first five years of the lease.

This allowed Pax8 to occupy a building they felt would enable them to recruit the large numbers of high calibre of staff they needed to rapidly reinforce their foothold in the European market, without calling upon their capital reserves.

The deal not only helped reinforce Pax8’s commitment to Bristol, but also showcased an innovative way forward for other fast-growing businesses in the city to expand their operations in a way that allows them to fund their business space through revenues, rather than through funding or borrowing… and encourage other landlords in the city to offer similarly attractive arrangements to the owners of No 2 The Distillery (RLAM).

The steep trajectory of the tech sector in Bristol has brought large numbers of well-paid jobs to the city, but the subsequent shortage of skilled staff can make recruitment problematic. Offering a quality workspace designed specifically to this sector’s requirements provides a major recruitment tool, as the work environment figures very highly in their staff’s priorities.

The importance of securing Pax8 as an occupier has huge ramifications for Bristol’s reputation as being “open for business” for the world’s big future employers.

In Pax8’s words, “As a business looking for a highly motivated, energetic workforce, Bristol was the obvious choice for Pax8. We were also looking for a city with a lot of ambitious, energetic talent, and the universities based in and around Bristol were a major draw.”

Having all of these attractions as a city means nothing if Bristol’s property sector cannot offer the kind of flexible and imaginative solutions that these companies need to meet the demands of their workforces and their boards. The deal struck in behalf of Pax8 demonstrates a way forward that will encourage enlightened landlords and developers to adapt to the new commercial imperatives driving our economy and offer similar terms.

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