Landsec has just received sign-off for a second City of London office scheme inside five months, a boost to the REIT’s development pipeline in a borough that its head of offices calls a “powerhouse for the UK”.
On Tuesday, the City of London Corporation gave Landsec the go-ahead to redevelop the seven-storey Hill House, EC4, as a 380,000 sq ft, 18-storey office tower with a rooftop restaurant, cultural events space, and a new home for the Shoe Lane Library.
Together with its plans for 55 and 65 Old Broad Street, EC2 – approved last November – the developer now has more than 660,000 sq ft of space lined up in the Square Mile, a third of its 2m sq ft development pipeline across the capital.
“The City is very focused on making sure it’s a borough that’s going to thrive and making sure it’s a powerhouse for the UK,” says Landsec head of office Oliver Knight in an interview with EG following the Hill House approval. “The City is a well-proven showcase of locations and destinations… We see this being a really exciting opportunity. We can’t wait to take it forward.”
Package deal
The opportunity came about when Deloitte, which had a lease in the 165,000 sq ft existing Hill House until 2035, started to rethink its London real estate needs, committing to Landsec’s One and Two New Street Square but deciding to exit Hill House. Landsec worked with the accountancy firm to create what Knight calls a “package deal”, regearing leases but allowing the occupier to leave Hill House and clear the way for the REIT to develop “a much more significant scheme” in its place.
The Apt Architects-designed scheme will be net zero in construction and operation, with almost 60% of the existing structure retained and materials reused when possible. “Sustainability is a really important lens for how we start any process,” Knight says, noting that the buildings 1970s beginnings as a print work used by publishers on Fleet Street allows the company to keep 90% of the basement and piling in the ground – accounting for 60-70% of the site’s embodied carbon – and then aim for new, “best-in-class” development above ground.
Aligning environmentally friendly development with meeting exacting occupier needs is no walk on the roof terrace, Knight says: “Those two don’t always come easily together. Either they either cost a lot of money from a sustainability standpoint, or it leads to compromises, where you repurpose a building that’s not fit for the future.”
Pushing the pipeline forward has been helped by Landsec’s continued offloading of existing office investments. “There is some clear evidence of what we are doing with single-let HQs where we are unable to add a lot more value,” Knight says, pointing to a block such as the Deutsche Bank-let 21 Moorfields, EC2, which it sold in 2022.
“It doesn’t make sense for us to hold those, tying up a lot of capital in single-let buildings. Deutsche Bank and Deloitte wanted us to deliver a fantastic base building scheme, take it on as a single-let building and run it themselves. They would know they had a developer with a great track record and balance sheet to deliver it up-front, but not look for us to take an active part beyond that. It doesn’t make sense for us to hold that with our capital when we can redeploy that into better investments. Also, it’s thinking about market timing, and when is it you can realise that capital and create opportunity for the future… That gives us firepower and means we can manage our balance sheet very effectively.”
It’s early for Knight to consider what types of occupiers will eye the new Hill House or 55 Old Broad Street. But he has faith in the enduring appeal of the right workplace.
“The central London landscape is really interesting at the moment in terms of occupiers,” he says. “Tech was the growth champion for the last decade. Has that pulled back a little bit? Possibly. But we have to look at the context of this particular location but also the wider environment of central London. A lot of headlines have been written about overall vacancy rates and the death of the office. What is clear is that that’s not the case – the bifurcation of the market, I have never seen it like it is for the last 15 years. That grade-A versus grade-B and differentiation of best in class – we’ll continue to see that gap widening in terms of rental performance and focus on the best buildings.”
As for a definition of “best”, Knight points to three principles of transport connectivity, sustainability and amenity – the latter both at building and place level. “The decision to come to the office is no longer just about ‘Do I have a desk with my name on it?’ It’s thinking, ‘What is the overall experience? What are my options at lunch time, can I get to the gym, meet my friends, is there somewhere fun to go after work?’”
He adds: “It used to be a case of saying the CFO holds the purse strings, what’s going to deliver the best value? It’s no longer about rent per square foot, it’s about what is the cumulative package we are delivering here through our workplace”.
Just this week, Knight adds, he took a call from an occupier interested in taking space at One New Change near St Paul’s – citing the building’s F1 racing simulator as perfect for entertaining clients visiting the offices. “It’s about the extra layers of experience and amenity that play into it,” he says.
Forensic study
If Landsec has found the City of London embracing this vision, the team also knows that other boroughs are proving tougher to work in. Knight declines to join colleague Marcus Geddes commenting on the worrying outlook for Westminster’s office provision and planning policy, instead offering a city-wide warning.
“If we look at London from a global standpoint, what we don’t want to do is make London a difficult place to do business, or a difficult place to meet the needs of global businesses,” he says. “We need to make sure the London landscape is not prohibitive to enabling future growth. That’s the biggest challenge I see.”
With that in mind, Knight and colleagues are maintaining what he calls a “forensic” study of the central London pipeline as it relates to Landsec’s own capital allocation.
“What’s clear is that through the economic challenges of high inflation, moving out base rates and higher costs of capital, there are a number of schemes that are going to be deferred,” Knight says. “That creates an opportunity for us in terms of being balance sheet-financed, but also delivering the best schemes in the best locations. We are seeing a huge number of customers looking at expansion-level requirements. It’s not a case of waiting for the market to come to you.”
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