Assessing the future of 1 Birdcage Walk

Professor David Nowell, IMechE trustee and member of the HQ working group

'We need to make a decision about the future of our Birdcage Walk headquarters'
'We need to make a decision about the future of our Birdcage Walk headquarters'

Many of you will likely have read about the IMechE HQ building in our recently published annual report or have heard the discussion at the annual general meeting. We are coming to the moment when we need to make a decision about the future of our Birdcage Walk headquarters.

It is important that we all have the same understanding of the context and decision we face. It is in that light that I would like to take the opportunity to update those of you who might have missed these conversations on the latest work regarding our building.

What has the HQ working group been doing?

An HQ working group, led by past-president Patrick Kniveton, was set up as a council recommendation, building on the work done by the real estate strategy group. This working group had wide representation, including council members, trustees, staff and other interested members. 

I would like to take the opportunity to thank Patrick and the group for investing so much of their time to take a thorough and professional approach. Getting into the detail and drawing in external expert advice has been a significant undertaking which has been of immense value in bringing the Institution to a place where we can take a well-informed decision.

Patrick and the working group were asked to explore the full range of options for the Institution’s headquarters and to recommend a way forward to the trustee board. In particular, the working group considered each option for the future headquarters of the Institution against five criteria: strategic fit, financial viability, asset value, risk profile, and likelihood of member approval. It also considered the impact of more subjective and harder to monetise factors. 

The working group produced a business case to review the options. These included retaining and refurbishing the entire Birdcage Walk estate; sale or lease of the freeholds, including 8-12 Old Queen Street and 3 Birdcage Walk; sale of the entire site and a move elsewhere in London; a move elsewhere in the UK; and a wholly virtual Institution. 

To ensure options were considered with the latest and best information available, the working group commissioned a new condition survey of the building and a complete valuation. A detailed financial model was developed and applied to each of the options. Once all the evidence had been assembled, the group undertook a multi-criteria analysis to score each option against the (appropriately weighted) criteria. Some options scored relatively poorly, for example, a move to a wholly virtual headquarters or a move outside London. 

Retaining the entire existing Birdcage Walk estate also scored relatively low. Aside from the building being larger than member and staff requirements, refurbishing the building and letting excess space, as either offices or residential, would require a significant loan. It was deemed that this would expose the Institution to an unacceptable financial risk, compounded by the uncertainty and operational risks of refurbishing such a large and historic building. This has only been exacerbated by the recent increases in interest rates.

The two strongest options were the sale of 8-12 Old Queen Street and 3 Birdcage Walk, consolidating the headquarters in a newly refurbished 1 Birdcage Walk; and the sale of the entire building and a move to freehold or leased premises elsewhere in London. 

These options have different risks and benefits and have been set out in more detail below. The trustee board has requested that both be explored further.

Refurbish 1 Birdcage Walk

This option will be familiar to you as it is similar to the project proposed by the real estate strategy group in 2021. The proposal is to sell 8-12 Old Queen Street and a long lease of 3 Birdcage Walk, using the funds to refurbish 1 Birdcage Walk. This is estimated to cost £25m.

The benefits of this option are the retention of the existing prestigious building, in a prestigious location. It is a fundamental element of our history and traditions and for many it is synonymous with the Institution and a key part of our brand. We have been told by some members that the building and its location serve as a status symbol which they value as part of their membership. It is well-placed for policy meetings with parliamentarians and civil servants. The existing building is clearly much loved by some.

However, there are drawbacks too. Many members have never visited and have no plans to do so. Whilst refurbishing a building like 1 Birdcage Walk would be an opportunity to showcase low-carbon technology in a heritage building – work that many of our own members are engaged in – refurbishing historic buildings also represents considerable financial risk with many unforeseen issues. 

There are also known challenges too, such as how to split out the provision of utilities and services, which could require a new substation to be built. Some of these risks might be mitigated by choosing a suitable development partner, although the inherent risk would still be significant. Even when refurbished, the building would still be historic and require significant investment in maintenance and upkeep.

Selling Birdcage Walk and relocating

The second option would be to sell the whole Birdcage Walk estate and either lease or buy an appropriately sized building elsewhere in central London. The working group has recommended that the Institution stay in London as the capital is readily accessible, both within the UK and for international members. There is wider value to retain staff and the proximity to Whitehall to continue the Institution’s ability to advise on and influence policy.

The benefits of this option are different and almost the flipside of the option to refurbish, likewise on the costs. It is the most attractive option financially, with modelling predicting that the Institution could be £650,000 per year better off. It also has significantly lower risk, as the unforeseen refurbishment issues would be removed. 

When considering the move, a new building would be chosen to allow it to meet the needs of the Institution in the post-Covid world, and it could be a modern, sustainable, zero-carbon and highly engineered building which is attractive to current and future members in a different way to the existing building. There would likely also be significant surplus funds which would enable the faster implementation of our new strategy, notably in the investment in new digital infrastructure.

However, the downside is that it is likely that a new building would not be in such a prestigious location, and we would lose the historical association with the current building. These are things that impact our reputation and brand, and are very hard to put a value on.

Next steps

The HQ working group’s draft report and business case has now been considered by the trustee board, which has consulted with and sought assurance from the finance board, audit and risk committee and strategy committee on the assumptions and approach taken. The work has also been reviewed and discussed by members of council. Once the report is finalised it will be shared with the entire membership. 

The HQ working group made some recommendations for further work on these options, which the trustee board has accepted and agreed. This work is being taken forward by an HQ programme board with the assistance of a consultancy firm that specialises in determining facilities needs and solutions. These recommendations include undertaking market testing to understand whether the indicative building valuations accord with buyer interest and possible sale prices.

This further work, when coupled with the output of the HQ working group, constitutes a clear plan that will allow trustee board and associated assurance boards to review the progress and bring the issue to a member vote on a final proposal in early 2024. 

It has been a long journey and perhaps some members may wish that a decision could have been made earlier, but, while the condition of the building imposes some urgency, it is also important that we pursue a course of action that is widely supported, and which is the right one for the Institution’s future.

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