While the debate about potential oversupply in the City rages, its guardian, the City of London Corporation, is looking further into the future. It believes the City is pulling ahead of the world’s other financial centres, New York and Tokyo, to become the leading location for banking and finance.
But this perceived growth presents a challenge. City surveyor Ted Harthill explains: “It gives us a potential problem, and we have to concentrate quite heavily on looking at future demand and how it is going to be accommodated.”
Last year, the corporation commissioned CB Richard Ellis to study areas that could accommodate this growth. The research identified 43 sites that could house more than 50,000 sq ft and had total development potential of at least 9m sq ft. More than half the sites lie adjacent or close to the City boundary.
The three main clusters of sites identified were the area south of Shoreditch, between City Road, Finsbury Square and Broadgate; the area to the north-east of Liverpool Street and Spitalfields; and south-east around Aldgate Circus to Tower Hill.
While the market is in agreement that, in this cycle, much development activity will be centred on the core City locations, the ball has already started rolling in the northern fringes.
Stimulate the market
The City of London’s research showed the potential for the area north of Spitalfields, and it has acquired property there in order to stimulate the market.
“News got around, and others did research and agreed with us and started buying in as well,” Harthill says. “The whole thing now has got a tremendous momentum.”
Developments planned in the area include British Land’s 201 Bishopsgate, EC2, and its recently announced proposal to extend its Broadgate scheme, E1, by 1.2m sq ft. Hammerson plans to develop 1.5m sq ft of mixed-use development at its Northgate site, E1, and the City of London has a planning application lodged with Tower Hamlets council for a scheme of around 250,000 sq ft.
“There must be 10 or 12 quite important sites which are under the control of able and reputable investment companies,” says Harthill.
Jim Gillett, Nelson Bakewell’s head of City office, says: “Rising to the north of the City up towards Tower Hamlets and Hackney, it’s like Plantation Place or Fenchurch Street was if you go back 10 years. You would not have gone down there then.”
The rental differential has also changed in the past 10-15 years. Neil Prime, international director at Jones Lang LaSalle, says that Broadgate has changed the rental scene by establishing levels of £50-£55 per sq ft far closer to the City headline of £60 per sq ft than previously.
“There would have been a £20 per sq ft differential 10-15 years ago,” he says. “We will have an extension of an established rental core. It will be a totally different landscape, but it won’t be in this cycle.”
The area to the City’s south-east, which Gillett describes as a “problem area”, has yet to experience the level of interest being enjoyed by the north. On the boundary of the congestion charge zone, it gets clogged with traffic, and any location that is hard to get to will challenge letting agents. This is something Gillett believes will need to be addressed before the area’s potential is realised.
Rents here are below the City’s headline, and there are not many parts of the City where this is the case. If transport issues were to be addressed, the area could prove to be a wise investment.
To the west, although not featured as a cluster in CBRE’s research, a number of developers have quietly been putting together sites and buildings with some success.
Neighbouring Midtown has emerged as a West End overspill location, and some commentators believe keen rents along its boundary with the City could attract occupiers from the east.
Land Securities has entered this market, with more than 700,000 sq ft of development in four buildings at New Street Square, EC4. Deloitte has taken a total of 249,000 sq ft of prelets in two buildings at the scheme.
British Steel Pension Fund is undertaking a major building refurbishment on 82,000 sq ft at15 Fetter Lane, EC4. And Delancey is planning the 264,000 sq ft Rolls Building, also on Fetter Lane.
Drivers Jonas head of research Anthony Duggan says: “It’s a great space between the City and West End for occupiers that have clients in both. It’s a huge discount to West End rents, being a third of the price. There is also quite a bit of a discount compared with City core rents. That differential is narrowing though.”
He uses the word “renaissance” to describe what LandSec is doing at New Street Square, comparing it with its developments in Victoria, SW1, where it was able to create a critical mass of development that regenerated an underused area.
JLL’s Prime says: “This area to the west is a real hot spot in terms of need for new product. I do see City occupiers looking westward. A lot of demand for this part of the City is from companies that are already based west of Bank.”
The City is no stranger to periods of oversupply and if it comes through to the next phase of the market cycle with supply and take-up figures in a reasonable balance the foundations will be in place for the core market to grow.
