Where once the cluster of London’s business districts was round and compact, it now resembles the shape of a rugby ball. Squeezed supply in central London and major advancements in connectivity are seeing offices sprout further east and west. And while the north of Euston Road to the M25 looks sparse today, expect Crossrail 2 to change all that, too.
Central London will devour the city’s fringe areas within the next 20 years.
Development in areas such as King’s Cross, Old Oak Common, Croydon, and Stratford, given major impetus by Crossrail, will evolve to the point where no one place will be “central” any longer.
Instead, the capital will exist as a series of neighbourhoods, each with their own distinct characteristics and sprouting around major events, such as the Olympics, the football World Cup – with any luck, or significant infrastructure.
A cast of leading property figures made the provocative forecast at an EG round table held at the London Real Estate Forum in Mayfair on 10 June, headlined “Avoiding the office supply black hole”.
They agreed that the sprawl of London’s traditional business hubs of the City and West End to, most noticeably, the city’s east, was being driven by “footloose” occupiers pushed outwards by limited choices of offices and inflated central London rents.
“The east is an increasingly acceptable alternative to West End occupiers,” said Elaine Rossall, head of research at Cushman & Wakefield.
However, there was a need to keep this type of expansion in check, said Nick Searl, partner at Argent.
“My biggest concern is that those kinds of areas succeed massively to the detriment of the centre. It would be a shame if areas such as Mayfair and Soho, because of pricing and stock, started to lose their workforce and we ended up with a tourist destination with a lot of houses for rich people.
“Only policy will stop that from happening.”
There was a growing tendency, he added, for occupiers to show greater interest in an area than in the quality of a building.
“It is the experience businesses sell to their staff that is critical and connectivity and the nature of a place is right up on top. If a company can’t have that conversation with their own staff, then the move is too big a risk for them,” he said.
“It’s not about the building any more – a great building is a given.”
Neil McLeod, head of central London for Aviva Investors, warmed to the theme, saying he was yet to find an investment case for a quality building in an emerging corner of London.
“If you took the Angel Building, EC1, and stuck it in Elephant [& Castle], would the quality of that building attract a tenant to an area in need of further regeneration? We are looking for that stock but can’t find it.”
Talking points
Neil McLeod, director – head of central London, Aviva Investors
“You are never quite sure whether the quality of a building will work, irrespective of where it is, and this restricts where you can do speculative schemes.”
Simon Rawlinson, head of strategic research, EC Harris
“One potential source of an office black hole is the capacity of the industry to deliver them. I’m not sure it’s got anything to do with developer desire to build or the finance to put it in place, it’s the people to do the work.”
Anthony Burnett-Scott, partner, real estate, Macfarlanes
“Power companies aren’t building ahead of need, so you have to create power or find some other alternative way of powering your site. And since most schemes are now mixed use, you have to balance office with resi, which you never used to have to do.”
Steven Pitchford, partner, real estate, Macfarlanes
“Every developer you talk to is sucking their teeth complaining how construction costs have increased, and this must be putting a constraint on the viability of potential schemes.”
Elaine Rossall, head of research, London markets, C&W
“Central London has a way of flexing to meet the needs of occupiers. In previous cycles Ludgate and Broadgate were reactions to the city expanding and King’s Cross is the latest example of this reinvention.”
Simon Silver, director, Derwent London
“The restricted supply of office space in Westminster is a credit to the council because it’s trying to retain the character of the area. To build taller and higher and lose that character would be tragic, so areas that were once fringe are coming into the main frame.”
Anne Kavanagh, global head of asset management and transactions, Axa Real Estate
“The public realm and war on talent is key and that’s a trend across Europe. It is a much broader decision for occupiers than just the building or the floor. In the last few major occupational deals we’ve done across Europe, the wellness of a building and the environment has been a big factor.”
Nigel Fuller, fund manager, Legal & General
“The big issue for us is whether the infrastructure is in place. If you haven’t got access to power and broadband, a lot of buildings suffer.”
Nick Searl, partner, Argent
“London is more footloose in terms of where occupiers want to go, but there are still an awful lot of people, particularly international ones, who, for their for their credibility across the planet, need to be in the right part of London and that address is vitally important.”
