The EG Interview: CBRE’s Murdoch on the CWM merger and retail growth
On a brisk 2 February 1992, Scott Murdoch founded niche retail and leisure agency CWM. Thirty years later to the day, he signed a major deal to merge the consultancy’s operations with CBRE. It was a parallel that Murdoch describes now as “serendipitous”.
“I was at Richard Ellis at the very beginning of my career, so I boomeranged back to CBRE,” he says in his first interview since the takeover, speaking at the Mapic conference in Cannes.
As chairman of UK retail at CBRE, the former CWM managing partner now oversees some 190 people, compared with around 30 in his team before the takeover. There is more diversity in the task than he was once used to.
On a brisk 2 February 1992, Scott Murdoch founded niche retail and leisure agency CWM. Thirty years later to the day, he signed a major deal to merge the consultancy’s operations with CBRE. It was a parallel that Murdoch describes now as “serendipitous”.
“I was at Richard Ellis at the very beginning of my career, so I boomeranged back to CBRE,” he says in his first interview since the takeover, speaking at the Mapic conference in Cannes.
As chairman of UK retail at CBRE, the former CWM managing partner now oversees some 190 people, compared with around 30 in his team before the takeover. There is more diversity in the task than he was once used to.
“The first conference I had at CBRE was on the menopause, and the last one I had three weeks ago was on diversity and inclusion,” Murdoch says.
“We never had those sorts of things at CWM. I am loving that corporate environment, it gets the creative juices flowing and it is mentally much more challenging.”
Know your rivals
CBRE spent a total of £11.9m on acquiring consultancies CWM, VSL & Partners and Dougray Smith in the first half of this year, according to accounts filed with Companies House – although individual pricing was not disclosed. In CWM’s case, the takeover solely concerned the agency business owned outright by Murdoch. For the founder, the deal was a “win-win” scenario for all parties; “a perfect fit”.
The journey to the merger could be interpreted as a lesson on the importance of getting to know your competitors. Murdoch spurned several takeover approaches for CWM during its first decade in business, including from large names such as Savills and Cushman & Wakefield, he says. But his “robust” declination to engage with suitors meant there were no approaches for the two decades that followed. “It was a lifestyle business, a very small entity, from two of us to ultimately 46 at its height, so when I was a younger man there was never any sort of intention of wanting to be part of a larger organisation,” he says.
That was until lunch on a Wednesday afternoon in October last year, with former CBRE chairman of retail and former arch-rival Malcolm Dalgleish – whom Murdoch had gotten to know socially in the past few years, and describes as “a lovely man and very tricky competitor”. During the meal they worked out that while the core skills within CBRE’s retail team were significant, it lacked in London estates and travel retail specialisms.
“By the time the coffee came round, we worked out that if we put the two businesses together, there would be no casualty – it would be a direct add-on,” says Murdoch.
After hearing nothing more over the next few days, Murdoch dismissed the conversation as a casual catch-up that had come to nothing – until the following Monday, when Dalgleish linked him up with Ciaran Bird, CBRE’s divisional president for CBRE Advisory Services and chief executive for the UK and Ireland. From there, negotiations progressed swiftly.
“We agreed terms, Ciaran and I, within 48 hours,” says Murdoch. “We did it in a couple of phone calls, one meeting face-to-face, and shook hands.”
Murdoch acknowledges that he took some heat for leaving stakeholders out of the loop for most of the process – in particular, a cohort of five partners including best friend Shirin Elghanayan, now executive director at CBRE. However, Murdoch was keen to keep negotiations to himself until at an advanced stage for fear of jeopardising the deal, citing an overture from Knight Frank 25 years ago that rocked the boat internally.
“I agreed with Ciaran and put it in his hands over Christmas, and I only told the partners with a week to go,” he says, adding that he would “obviously never have sold” the business if any of the quintet disagreed. And it was a risk that paid off.
“I knew them all so well, and for different reasons I knew they’d want to sell [or] merge with CBRE,” Murdoch adds.
Several CWM joiners gained roles heading up their own teams at the agency, so they set out to prove their worth from the get-go to avoid consternation from their fellow CBRE directors.
As chairman of the retail arm, Murdoch describes tackling cultural challenges as “frankly exhausting, but very important”. His hope is that by the new year, those with any possible concerns will see “a lot more settled”.
End of an era
Upon its move to CBRE, CWM’s mandates included advising more than 60 brands in the UK, including Tommy Hilfiger, Hugo Boss and Pret A Manger. Battersea Power Station is among the London estates in its stable, while leasing work included Edinburgh St James.
Murdoch said he felt “blessed” to be involved in the latter two locations, as “the two last shopping centres that might ever be built in the UK”. Battersea Power Station opened in October after a lengthy restoration, while the first phase of the £1bn Edinburgh St James scheme opened last year.
“There may be refurbishments in future, but no one’s ever building a new, shiny, million sq ft mall ever again,” says Murdoch. “There’s no chance. Retail has shrunk so much.”
It is a divergence that has left the “best-in-class centres with a lot of power”. “The Traffords, the Bullrings, the Westfields, all the best regional malls and high streets are performing amazingly well,” says Murdoch. “The minute you go off prime, that’s when you’re in trouble.”
Prime retail has been further bolstered by what Murdoch called “one of the biggest things that’s happened” in his career: the government’s decision to freeze the business rates multiplier and abolish downwards transition in next April’s revaluation, as published in last month’s Autumn Statement.
“I can’t think of a more beneficial change in retail in my recent career, honestly,” says Murdoch. “It was so unexpected.” He adds that one unnamed department store alone is bound for a £600,000 rates reduction from April next year. Last month, the Valuation Office Agency indicated that 508,300 shops will see rateable values fall by 10% overall to £14.62bn upon revaluation.
“This is a massively profound advantage for tenants and landlords, but share prices at the retailers and REITs haven’t changed much since the revaluation announcement,” he says, adding that owners now have a far stronger negotiating position on rents and break clauses. “It’s going to make the opportunity for rental growth quite significant.”
Retail’s rebirth
The CBRE takeover bolstered industry hopes that retail was rebounding. Has that notion faded as the UK went into recession? “Except for one or two retailers, I don’t think you’ll see many casualties occurring next year,” says Murdoch. “All of the distressed retailers were cleared out during the pandemic. What’s left are robust tenants that want bricks and mortar.
“The occupier market has shrunk, don’t get me wrong. If you own that one centre or high street, there are definitely fewer transactions than there were 20-odd years ago. But it has given hope that there are probably more in retail than there are in offices or industrial. Both of those have had their great time. This is the strongest sector, again, for the first time in a long time.”
Ongoing negativity around shopping malls – expressed by the likes of LondonMetric Property chief executive Andrew Jones, who told EG last month that “nobody’s dumb enough to want to buy a shopping centre in this market” on the back of tightening yields – was blasted by Murdoch as “fundamentally incorrect”.
“I was surprised by that,” says Murdoch. “I really rate [Jones]. But shopping centres are a very good sector to be in right now. If you have best-in-class centres, they’re trading ahead of 2019. In most product categories – fashion, apparel, jewellery, sports – our tenant clients have seen a like-for-like straightforward improvement on 2019 by 3-5% and 10%.”
As challenging as the economic backdrop is, Murdoch is upbeat that retail will weather the storm far better than most.
“Things are really more positive than you might expect,” he says. “Businesses are feeling more confident again, because there is activity. There’s a lot of action going on out there in the UK.”
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