Susan Freeman
Hi I’m Susan Freeman, welcome back to our Propertyshe Podcast Series where I get to interview some of the key influencers in the amazing world of real estate. Today I am absolutely delighted to welcome John Burns, the Co-Founder and outgoing CEO of award-winning real estate REIT, Derwent London.
The Propertyshe podcast is brought to you by Mishcon de Reya in association with the London Real Estate Forum. Please make sure you check out our Propertyshe website: mishcon.com/Propertyshe for all our interviews and programme notes. The podcast are also now available to download on your Apple podcast app, on Spotify and whatever podcast app you use and do continue to let us have your feedback and reviews and most importantly your suggestions for future guests.
After 35 years as CEO of Derwent, which he co-founded with his step-brother, Simon Silver in 1984, John Burns steps down shortly and hands over to his longstanding colleague, Paul Williams. In 2007 Derwent merged with London Merchant Securities to become Derwent London and is now the largest central London focussed real estate investment trust with an investment portfolio comprising 5.5 million square feet and worth 5 billion pounds. Derwent London has earned a reputation for anticipating the locations of tomorrow and contributing to London’s regeneration by creating award winning, design led working environments. Their many projects include the iconic White Collar Factory in the heart of the tech belt, 80 Charlotte Street in Fitzrovia, Brunel Building in Paddington and No.1 Oxford Street. John is a former Chair of the Westminster Property Association and a founding member of the New West End company global business partnership focussing on London’s West End. So now we get the chance to talk to the visionary John Burns about 35 years of Derwent. John, welcome.
John Burns
Thank you.
Susan Freeman
Just starting off at the beginning, you and Simon Silver, your step-brother founded Derwent in 1984, so how did that come about and it’s not an obvious thing for step-brothers to go into business together?
John Burns
It came about because in around that time I was looking to get involved in a public company and we found a shell through introduction that was listed on the London market with market capitalisation of 1.5 million and I had probably had enough of sort of being an agent and wanted to move on. Simon stayed being an agent for a little while until I persuaded him this thing was going to be interesting and moved over so we had a base and we had a little knowledge and we had a lot of enthusiasm and that’s really how it started.
Susan Freeman
From that start Derwent has established a pretty amazing reputation as one of London’s most innovative office specialist regenerators and you are always admired for your design led approach. Did you set out to create that model or did it just evolve?
John Burns
No it wasn’t that way at all. In fact we were probably more asset managers and even today people regard us as out and out developers. We are probably only developing about 15%/16% of our portfolio so we are managing a lot of properties and we thought we would be able to manage them more efficiently than some of the big companies so we bought investment portfolios at the time but gradually we started to get involved in design. That was very much through Simon and do very small buildings and start to think about what type of space people really wanted. We didn’t really want to do corporate buildings, we wanted to make interesting buildings and at the time a lot of people were looking to get out of the conventional space and that’s how that fitted in.
Susan Freeman
And I think that you have described your approach to development as borrowing from the past to enhance the future which I think is just, you know, a fantastic way of putting it. You go into what people regard as unchartered territories or you have gone into unchartered territories around London, I mean, do you see yourself as pioneers?
John Burns
Well, I think we are bold. I think we are prepared to back our judgment irrespective of who is going to take the space. I always used to say in the early days of presentations that we are the company that takes companies to the places that they don’t want to go because we feel that if you create the product, they will come. And it has been proved time after time again. So we are prepared to tackle locations that other people might have considered off pitch. We are also I think always prepared to consider looking at a building, taking it back to its bones and having the same structure but recreating it in a special way. Our preference actually, although we have done a lot of new buildings, is the older buildings that we can do. I mean for example, we took Burberry from St James and Mayfair into sort of Pimlico Millbank and now nobody ever thought the world class brand like that would go there but they did because they had seen some previous space of ours in the city fringes which we rename that the tech belt and that’s now become on the map and they said ‘have you got anything like this, we think it’s terrific’ and we said ‘we can make you something better’. So in many ways that was a great booster for us because it has become all about the space, the efficiency, a good working environment and we built on that at an early stage and tried very much and I think we’ve been successful in creating a Derwent brand which is what we wanted to do.
Susan Freeman
Yes I think it’s, you know, it’s a real testament to you and to the whole Derwent team in an industry that’s always you know, very much gone location, location, location and gone for the safe places. One of the films that I was looking at on your website yesterday was ‘our buildings are the brand’ and I think that’s just about it, one goes through a whole series of buildings, each of which are entirely different and have their own brand but I mean, do you think that the rest of the industry has… now sees brand in the same way that you see brand because it’s been quite slow in happening?
John Burns
I think they are grasping it and people are realising you just can’t stick up a building, you’ve got to put a lot of thought and imagination in it and I think they are trying to create their brands. I hope we still do something a little bit special. Every scheme we do, we try and find improvement or find something else, that little je ne sais quoi, that little x-factor that we can put into it - and that I think keeps people interested. We have a great bunch of young people working for us and that really captures their enthusiasm.
Susan Freeman
On the subject of every building being different, I mean, Brunel Building I mean is an amazing example.
John Burns
Brunel Building has been an amazing success. We finish it very shortly for practical completion. It’s again a pre-revolutionary building, it’s a diagrid building which means it is totally column free inside and it has pre-let, it will be 100% pre-let before we complete and the thing I find very exciting about it is the type of tenants that we have attracted. Sony Films Division have gone there who have been in Soho for many, many years. We’ve got a lot of very interesting companies that are premier league have gone there, a whole batch of tenants so it’s a village that building and it endorses, again as I said before, if you’ve got a good product, they will come to you providing it’s got good communication too. And today the company’s expanding want modern space, they want plenty of light. Derwent has always made a play of giving better head room and height in their buildings than the majority of developers. We are prepared to lose a floor, in some cases two floors in order to make that space really great and it does result in attracting lettings. Yep Brunel is… we are very proud of that building.
Susan Freeman
No it’s a, it’s a great building and we are delighted to have acted on it.
John Burns
You are quite right. Very well done. So we’ll all do well out of it.
Susan Freeman
Absolutely. I remember when we spoke a couple of years ago and you were just about to start on it and you described the building as it was as dull and corporate and you said it was going to be very slightly Brunel influenced and I just wondered where the Brunel influence came in?
John Burns
Well Brunel of course was regarded as our greatest Englishman and he was in that area, there was a Brunel bridge and Simon Silver decided to name it the Brunel Building so Brunel was an engineer and I think if you look up Brunel today, that is an engineering feat. So we’ve established that.
Susan Freeman
I mean it has this amazing exoskeleton on the, on the exterior. I mean was that something that was difficult to construct?
John Burns
Very good architect here, all the architects we use are very good but Keith Priest of Fletcher Priest, he devised the idea and we straight away bought into it. I mean Derwent works very much side-by-side with its architects. We don’t just brief someone and say, “bring me a building, what do you want to do?” We will sit down, we have very skilled people and we will discuss it between them and try and combine the skills and it works. They are quite happy to work with our ideas and vice versa. So it’s teamwork. Derwent is all about teamwork at all levels of the business.
Susan Freeman
Actually one of the things I was also looking at, you have a film on the website about the model making for Soho Place which… and actually the construction of the model is almost the timescale you would expect for a building.
John Burns
You are not kidding, you could build a small building for the price of that. Yeah the model making is important. We’ve got it in our ground floor area of what we call our showroom. It displays it all but you need a model today, you need it to show the tenants. When you are talking about somebody taking space you’ve got to give them a very clear picture of what they are going to get.
Susan Freeman
Actually one of the things we haven’t spoken about yet is your Savile Row offices because I suppose living the brand, the work you have done there to refurbish your offices, I mean just, really just exemplifies I suppose the attention to detail and a design and I know it has won several awards.
John Burns
It has yes. It’s a good story actually because we originally bought that in a portfolio years ago from MEPC and we had always operated north of Oxford Street, Wigmore Street and Wimpole Street but I said when the first floor became available in that building we would take and that’s what happened and then we took more and more floors until the building started to get quite outdated and our space wasn’t as efficient as we wanted it so we smacked in a planning application. At the time residential was the word and we won a consent but unfortunately somebody awful in the Government put the stamp duty up dramatically which took the viability right out of the scheme. So we said “right what are we going to do next?” We then thought about moving to Stephen Street, Tottenham Court Road which I wasn’t very keen on and Simon wasn’t very keen on but it was fairly efficient but after really going in to it we felt we needed to be in the heart of the West End where people drop in so we did a rolling refurbishment programme. We were in the top floor so we prepared the lower floors that we went into, made a separate entrance for ourselves and a separate entrance next door for the three upper floors which I am delighted to say let successfully and really what it was, I can remember when we were in the building originally people used to say this is fantastic, it’s cutting edge but it wasn’t. It got dated. If you are in a building 18 years, it gets dated and it’s a building that isn’t really configured in the way you would do today so consequently we decided that we’ve been doing this for 30 years for everybody else, why shouldn’t we have something similar for ourselves and that’s the story and it’s worked very well.
Susan Freeman
I am lucky enough to have had a tour by Simon so I was sort of…
John Burns
Did he charge you for the tour?
Susan Freeman
He didn’t but we did a reciprocal tour of the…
John Burns
Yeah we hear your building is very impressive.
Susan Freeman
Well I was very flattered I can tell you when Simon said he actually liked the design, he would like a tour of ours but…
John Burns
There you are.
Susan Freeman
…the staircase, the sort of floating staircase that you have in your building is…
John Burns
What the one in the middle?
Susan Freeman
Yeah.
John Burns
It was actually subject to much discussion because when you put a staircase in the middle you lose floor space.
Susan Freeman
Ah.
John Burns
Floor space attracts rent. Rents make money. But all in all we decided it was worth losing a few square feet and it has made it just that more attractive. It’s given the buzz in the building as well as people are constantly going up and down it. It’s a bit like a department store internally. I shouldn’t lose department stores at the moment as a word but it is pretty successful.
Susan Freeman
No. It’s a real, it’s a real statement. In one of the award comments described it as an exquisitely executed project from the first conceptual move to the finest point of detail so I think that’s exactly what you want as your HQ.
John Burns
That is really very nice to hear.
Susan Freeman
Yeah. So I mean Derwent have won so many awards over the years actually I don’t think there is any point in running through them all but I notice there are now quite a few for sustainability and you’ve been ranked in the Corporate Knights Global 100.
John Burns
And that’s a world thing, that isn’t just a UK.
Susan Freeman
Yeah which is, which is quite, quite something.
John Burns
One of the awards that I was particularly pleased was the Management Today Awards which is assessed on your sector and the whole company. At one stage we got to fifth in the whole of the Stock Exchange which I thought was really good. That was an award I think and we won the property sector about four or five times yeah.
Susan Freeman
One of the things I think is fascinating talking to you is the combination of you are often described as being ‘old school’ and you’ve got this combination of the traditional and at the same time, a sort of being totally at the cutting edge of development. I mean how does that, how does that work because it is quite unusual?
John Burns
Well I am not the design guru. I know the type of design that I like but I think it is very important that whatever we do, we’ve got to do it better and we research, we send our teams, letting teams abroad to the States to Europe to see how we are doing in comparison and I am pleased to say that when they come back we are not behind, we are probably a little bit ahead of the curve there. So we really are always looking to learn the whole time to create improvements. There is a tremendous appetite for that in the office. It is not just as I used to say to people, sticking a couple of Barcelona chairs in the reception. It’s far more to it than that. But a lot of thought, you mentioned the detail. It takes a lot of time. Sometimes I think perhaps we are over fussy with certain things but at the end of the day, it works out well and I think it is very important I think that there is no doubt that good architecture brings in good tenants.
Susan Freeman
And in terms of doing things differently, I mean the White Collar Factory in the tech belt as you have christened it, when you were thinking about it initially the intention was to build a modern version of the factory but reinvented as offices and claims to revolutionise the urban workplace. Has that worked? I know you wanted an urban canvas that wasn’t too corporate and you were worried about having boring lawyers…
John Burns
We don’t do a lot of corporate so I think really it was a bit of a dream White Collar Factory. We had worked with quite a few people on that, we’ve worked with Simon Orford on it, Simon Silver and agent David Rosen had some input in that certainly. It was something we wanted to build, it was exciting, it was along the lines of concrete cooling and let’s have a go at it and see what happens and it’s been amazingly successful because we let it bottom upwards. You know, sometimes you see developments, somebody wants the top, somebody wants the middle floors. We were quite disciplined about that, what we wanted and it worked out that way and of course we have been very creative by putting a running track on the roof. That’s a great success. We have a site behind, a building behind, Featherstone Building which I call the White Collar Factory’s little sister and work is starting on that. It is 125,000 feet which is a smaller building but it will be very much, different architect, but it will be very much along the lines of the White Collar but I do say one thing, I mentioned earlier that we are prepared to be bold. You are very bold in this business if you have got a really strong balance sheet. We have always had that because that is the fortress behind us, that’s the key to everything but I doubt today even after seeing White Collar success, that many developers, if any, would put up a building like that. So I think we understand what’s in the tenant’s mind, what they need. There is a lot of research done with that. We work obviously with agents but we also work very directly with the tenant’s, the decision makers and their teams. It is knowing what people want, what they are going to be happy in, are their staff going to regard it as a home? So that’s the key so we are building another little White Collar Factory in that sense but I am not sure many people will be copying us.
Susan Freeman
Well I think even your, your approach to your tenants, occupiers when you were developing White Collar was different. I think you invited the whole portfolio of tenants in to tell them about what you were doing…
John Burns
Yeah we did yeah.
Susan Freeman
…which was quite unusual.
John Burns
We do this, it is very much, it’s a team effort. My successor and CEO, Paul Williams has been an absolute master at dealing with our tenants at the high end but our leasing team, led by Emily, again we have very close communication with tenants and we want to give them the confidence that they are going to get a good building and it is going to be delivered as it is. We believe in relationships and if you go into a Derwent building, we hope the next building you take will be ours and it has happened many times. The Saatchi building in Charlotte Street, they were there, we moved them to two buildings, Terminal Building and Chancery Lane, now who would have thought a world class media company would go to Chancery Lane – it is full of people like lawyers.
Susan Freeman
I was going to say actually…
John Burns
Lawyers and barristers.
Susan Freeman
…exactly.
John Burns
But if you’ve got the correct product, they will go. The space was exciting. So we’ve always, we’ve always learnt that – make the space and they will come.
Susan Freeman
Actually mid-town is changing. We have more TMT occupiers coming in now…
John Burns
Yeah.
Susan Freeman
…than we do have lawyers and other professionals so maybe you, maybe you started that. Do you have a favourite building?
John Burns
As I always say, my favourite building is a let building which is income producing but moving on from that, I’ve always had a very soft spot for a building called Briggate House at the back of Victoria. It is a red brick building and I can remember going into it and it being like a sort of Ministry of Defence office from years ago with no freedom of space and our teams have knocked that building about, cut holes in the basement to create light, had lots of schemes and it is a great space. It is not over specified, it always lets well. So that is something that really goes back to the roots of Derwent. Finding an older building and then getting it up to modern standards.
Susan Freeman
Looking at sort of career decisions generally, I assume that the merger with London Merchant Securities was the highlight, I mean it is always talked about as the deal of decade and you can’t get much better than that but is there anything with the advantage of hindsight that you would have done differently?
John Burns
What is interesting is the deals that you have missed. I can honestly say we have been fortunate that we haven’t missed too many but there are always some but the London Merchant was the most exciting deal because I, being considerably older than anybody else, realised the potential of the properties and how great it would be to merge both companies together. I knew they would be pretty instant success and I found that really exciting to do that deal. That was a pivotal moment for us because it doubled our size. The merger has gone and still goes extremely well. Our Chairman, Robbie Rayne and our team, we get on very well indeed and I think it has been a great success and I think it has also been accepted by a lot of our investors who, apart from saying, it is a great deal, they are saying that’s one merger that’s worked. And so on a personal base I am very pleased that has happened.
Susan Freeman
Is there a secret of Derwent’s success or is some of it luck, some of being you know, good decision making because you know, clearly things, you know, things have gone well?
John Burns
Yeah we know our markets. We are our best research, there is no doubt about it because we are concentrating in limited areas so we know the rents on that. We know how to design a building and we are, we are what the American’s call real estate guys. We understand real estate which I think is very important. We’ve also got a very good strong financial discipline which helps and I think there is the imagination there to create these great buildings. At the end of the day buildings like Tea Building, Angel Islington, Burberry, White Collar Factory, they’ll go on long after we’ve gone. So they will be part of the London landscape and it is always looking, not just to do a building to do it up and get it let, that’s not our style. We won’t compromise. I am not saying we can’t go excessively on all costings of everything and over specify a building but we’ve got to have the confidence in a building that this will let.
Susan Freeman
Over, certainly over the last few years we’ve seen quite a lot of change in the way offices are let and obviously the increase in this in flexible working and I wonder how you see that, how you see that going, whether we are going to see more partnerships between the flexible working operators and the property companies or whether the WeWorks of this world are going to just take over. Do you have any thoughts on that?
John Burns
Well I think there is a place for them definitely. I think it is about 5% of the central London market. It was last time. Funnily enough we’ve been doing flexible lettings for about 25 years. Nobody seems to have noticed that. We have always believed in flexibility. We don’t have our particular brand but we have let quite a lot of space on these flexible leases. There is definitely a place for them. In our big buildings we like them. We’ve worked with The Office Group, they’ve got the bottom three floors at White Collar and all our tenants like Adobe, like Box, they are delighted that they are there because for a project they can take space so I think they are a great amenity and I don’t think they would like me calling them amenities but they are…
Susan Freeman
Probably not.
John Burns
…great for our building. We haven’t let one to an entire working organisation at the moment and I think probably we have always said that we’ll do some more ourselves. We were actually going to leave a couple of floors at Brunel but by popular demand in fact we had to disappoint a couple of tenants, we didn’t but who knows the next time. But there is definitely a place for them, absolutely. I think there has to be flexibility now. You will know that the 25 year lease is hard to get now and for example, we have got averagely sort of 12s, 12 without breaks at Brunel which is pretty good. It is also nice to try and have some breaks in your building because if you have got a good tenant and he needs more space you may be able to accommodate him. So that’s how we see the flex.
Susan Freeman
You have always at Derwent kept your focus on London and the focus on offices. Have you been tempted by residential?
John Burns
We have done residential where we have been made to as part of the planning is concerned. I think whilst we’ve got a lot of confidence in what we do, I think residential and fit out is a very different thing. We have preferred to sell on and get some overage. We’ve done a couple of small schemes, we did a little one in Queensway, a little one in Charlotte Street and I think we found them very time consuming for what was involved. So I don’t think we are looking to expand our residential activities.
Susan Freeman
It is interesting. John, you’ve been credited as having incredible foresight in your ability to read the market and political ships so I think I have to ask you where you see things going?
John Burns
Okay, well I don’t think we have ever been clever enough to read the market and call it on a particular day but you get a view of experience. The first thing is are people looking at your buildings and are they taking them? If that’s the case I think you will find that quite encouraging. What we are now is a time of low interest rates and it looks as though they are going to stay that way for an awful long time and where there are low interest rates there is a reluctance for people to sell properties and give up income if they can find a replacement, unless they can find a replacement and that in many ways slows up the investment market. I think there’s a lot of money still coming in from abroad. They are probably more hesitant at the moment until we know what’s going to happen. But I do believe that London is still very much on everybody’s notepad, I think the culture in London, the life in London, the education in the UK, still attracts overseas people. So I think the market, we thought last time, we see the market unless you get some macro problem is going to jog along steadily for quite a while.
Susan Freeman
So you are shortly stepping down as CEO and you will become non-exec Chairman. You’ve said that you are not planning to go on long holidays and play more golf so how are you planning to spend your time?
John Burns
Well I am moving to another office not far away because I think it is only fair that I shouldn’t be seen hanging around every day, they are perfectly capable of getting on with it and what I will do, I don’t intend to take any days off or any more time, I shall go to work. Obviously I will spend a fair amount of time with Derwent doing other things and then maybe I’ll find for a day or so to do something else. Quite what it is I don’t know. I am at the moment trying to get moved into my offices within the next month or so and see what happens then but I’ll be talking to people, maybe people approach me and I shan’t be looking to remain in acting let’s put it that way.
Susan Freeman
Well I am sure there will be a lot of people who will be beating a path to your door and maybe there will be some time to mentor some younger people coming up.
John Burns
I’d be very happy to do that. I like talking. If I can give some advice or maybe I can get some advice for myself, I am always happy to learn. Looking at that retrospectively I think you’ve really got to enjoy what you do. I think with Derwent we have a lot of fun and we’ve got great projects on. We have a good culture, I think that’s essential with a business. I am delighted to say as I am going that that culture is going extremely well and I think it will go on and I think also relationships, the company has always worked hard at relationships. We are all advisors all the way through, bankers, brokers, lawyers, architects, everyone and I think that’s, I think that’s a good signal for us.
Susan Freeman
That’s terrific. John thank you so much…
John Burns
Thank you.
Susan Freeman
…for your time today.
John Burns
Thank you Susan.
Susan Freeman
That was John Burns who is about to step down after 35 years as CEO of Derwent London, so really interesting and valuable to hear from him today and he really is somebody who has managed to combine being old school with embracing the very best of design and innovation to create London’s most cutting edge buildings and their buildings really are their brand. So if you haven’t already visited, make sure you do go to see every one of their award winning buildings. So that’s it for now. I really hope you enjoyed today’s conversation. Please join us for the next Propertyshe podcast interview coming very shortly. The Propertyshe podcast is brought to you by Mishcon de Reya in association with the London Real Estate Forum and can be found at mishcon.com/Propertyshe where you will find all our interviews and programme notes. The podcasts are also available to download on your Apple podcast app, the purple button on your iPhone and on Spotify and whichever podcast app you use. And please do continue to let us have your feedback and comments, most importantly, suggestions for future guests and, of course, you can also follow me on Twitter @Propertyshe for a very regular commentary on real estate, prop tech and the built environment.