DIGITALCITY BUSINESS RELOCATION
EXECUTIVE MEMBER FOR ECONOMIC DEVELOPMENT
COUNCILLOR P THOMPSON
EXECUTIVE DIRECTOR OF REGENERATION
TIM WHITE
17 DECEMBER 2007
1.
1.1 The purpose of this report is to seek approval to take a lease on premises to enable the re-location of DigitalCity Business and some of the businesses it supports.
2.
2.1 DigitalCity Business is the element of the overall Digital City Initiative that is generated by the Council and supports the development of new, existing and incoming businesses in the digital media and digital technology sectors. The project has been looking for the opportunity to relocate its office to somewhere in the town centre and off the University of Teesside campus for some time. The project is due to locate in the Boho Zone Core Building One, which was originally intended to be open in mid 2008/9, but will now not open until, hopefully, mid 2010. Since
2005 a number of properties in the Linthorpe Road area, Centre North East, and in the Boho Zone area have been considered.
2.2 However, the need has become acute over the past 6 months. The development of the new Institute of Digital Innovation on campus has gone hand in hand with increased space demands from the University itself – a sure sign of a successful and growing institution. Space demands from the Schools of Computing, and
Science and Technology mean that DigitalCity Business needs to move, ideally before Christmas 2007. There is also a space shortage at the University’s Victoria
Road incubation centre and a wave of companies that, having occupied incubation space for at least two years, must relocate.

2.3 Companies that must leave Victoria Road with urgency include 3 rd Dimension
Creations, Animmersion and Thap. Other companies including 13 Strides, Halch and MoShine will need to leave within the next nine months to a year.
2.4 The compelling reason to relocate is therefore to move the project and to offer these companies somewhere to go en bloc. Of course that somewhere will eventually be Boho One [CB1]. In the meanwhile there is a real need to keep this group of companies together as far as possible. The alternative – to allow them to fend for themselves – would invite them to consider other locations, including
Newcastle, Leeds, Manchester and London.
2.5 Losing these businesses would in effect lose the first generation fruits of
DigitalCity Business’s activities and the hard-won kernel of what is planned to become a large and successful business cluster: it would set the project back three years.
2.6 The ideal solution is to find good quality, affordable office space that can accommodate both DigitalCity Business and the companies that need to move – or at least as many of them as possible [ultimately, where a company wishes to relocate is its decision].
2.7 During September and October a number of opportunities were considered, but there are currently few offices in central Middlesbrough at the right quality level, at the right price. Properties including Auror a Court and the Council’s Enterprise
Centres were considered but the businesses themselves have unanimously chosen Royal Middlehaven House.
2.8 Royal Middlehaven House is refurbished office accommodation and presents the best possible solution. Its advantages are:

with approximately 4,800 sq ft [tbc] of space available, it can offer accommodation for DigitalCity Business and perhaps 5 or 6 other businesses;

it is a relatively new building with a high quality level of recent refurbishment;

the rent is realistic and value for money;

there is a reasonable expectation of further space becoming available
[there are more companies likely to require space in the medium term];

it is right next door to the site of Boho One in the Boho Zone: this will prove very eff ective in marketing and moving people’s perceptions of the area
– in other words, the Boho Zone dynamic starts now …;

moving off campus and into a building with a good profile will be good from the point of view of marketing DigitalCity to a wider audience. It will signal DCB as part of the town and the Tees Valley, and that it is available for all digital media, digital technologies and creative businesses, and not just those stemming from the University;


costs are as follows (psf)
Basic rent £ 8.50
Rates and services £ 3.50
Lighting and heating [common]
£ 1.00
Total £ 13.00 sq ft
2.9 However, the businesses themselves do not provide a good covenant for the landlord, being small and not long established. The less mature businesses also have limited capacity to take on full commercial leases on their own behalf. It is therefore proposed that DCB [the Council] would take the headlease on the office space with the right to sublet on license [though probably not for the full 4,800 sq ft
– see paragraphs 2.12 and 2.13 below]. The lease would be for 18 months, to correspond with the anticipated opening of Core Building 1.
2.10 DCB would sublet on licenses to businesses and retain a kitchen / small networking area for communal use, and also aim to retain a boardroom. DCB would cover the costs associated with common areas but recoup some of these by charging for boardroom usage. Each business would also have individually metered heating and electricity.
2.11 Firm commitments have been secured with, 3 rd Dimension Creations,
Animmersion, Thap, Anon Studios and BoxesRed. These will fully occupy the space [leaving one small room free as a boardroom or space for another company]. Xsite Architecture has also indicated that it will require an office when
Core Building 1 goes ahead.
2.12 Two of the larger of these companies
– Thap and 3rd Dimension Creations – need security of tenure as quickly as possible and are in a position to take on their own lease. Therefore it is proposed that they take up leases directly with Python
Property, with the Council signing a headlease on the remainder of the accommodation in due course.
2.13 These companies are taking approximately 2,000 sq ft between them which means that while the overall accommodation is approximately 4,800 sq ft [tbc], the
Council’s eventual headlease will therefore be for around 2,800 sq ft.

2.14 Breakdowns are as follows:
Space currently
Square footage
Office cost - allocated to
Thap
3rd
Dimension
Anon Studios 226
BoxesRed
Animmersion
457
280
Company cost per year
2,938 2,938
5,941 5,941
3,640 3,640
1,335 17,355 17,355
880 11,440 11,440
Inside DCB headlease
2,938
5,941
3,640
DCB direct cost
DCB 700
Boardroom 226
Kitchen / meeting
245
Corridor space
9,100
2,938
3,185
50 650
4,399 57,187 41,314 12,519
9,100
2,938
3,185
650
15,873
@13.00psf 57,187 743,431 537,082 162,747 206,349
2.15 DigitalCity Business’s costs can be met from within its current funding.
3.
3.1 A number of possible locations have been considered, with Royal Middlehaven
House identified as the best option for the reasons outlined at 2.8 above.
3.2 The Council’s own Enterprise Centres and Aurora Court were also considered.
The former could not provide a single location with the amount of available space to co-locate DigitalCity Business and the businesses as required and were therefore not considered further. Aurora Court was unattractive to many of the businesses because of its location/remoteness from public transport and because of its general condition. Ultimately the businesses’ wishes had to be a very strong consideration in identifying a preference.
3.3 The risk for the Council is that it will take on a lease for space for some of the businesses to locate into and recoup the rent from them, and that the space, for whatever reason, may remain vacant and the Council have to cover the cost. This has been/can be mitigated by the following:

separating the leases for Thap and 3rd Dimension Creations (as per para
2.13 and 2.14);

ensuring DCB does everything to retain the original occupiers;

working to ensure a waiting list:

there are companies that have expressed interest in RMH but which are not firm commitments;

there are further businesses that must leave Victoria Road over the next 12 months;


at least one incoming company is planning to relocate to the Tees
Valley in early 2008-9 and will require 400 sq. ft+ next or very near to
DCB.
3.4 The risk to the Council amounts to £12,500 per annum, or approximately £19,000 for the 18 month lease period. Provision can be made within other Economic
Development budgets to cover this risk in 2007/8, 2008/9 and 2009/10.
4.
Financial Implications – Financial implications are as identified in paragraph 2.14 above. The risk involved is as outlined at paragraph 3.3. However, this risk can be covered by making provision within other Economic Development budgets.
Legal Implications – The Council will be required to take a headlease and issue licences to the other businesses.
Ward Implications – Royal Middlehaven House is based in the Middlehaven ward, however DigitalCity Business is a town-wide/regional/sub-regional project.
5.
5.1 It is recommended that Executive approves the taking of a lease at Royal
Middlehaven House for the purposes outlined in this report.
5.2 It is also recommended that the Director of Regeneration be granted delegated powers to approve minor amendments to the lease if required.
6 .
6.1 This move will ensure that businesses supported by DigitalCity will be enabled to stay in the area, and provide early wins for the development of the Boho Zone concept.
7.
No background papers
AUTHOR: Sandra Cartlidge
TEL NO: 01642 729538
______________________________________________________
Address:
Website: http://www.middlesbrough.gov.uk