The City of London is the financial powerhouse and beating heart of the UK economy. However, despite the resurgent economy and optimism inherent in the market, there are macroeconomic and area-specific concerns that could affect the Square Mile’s property market.
The prospect of the UK leaving the European Union has the potential to cause swathes of occupiers to quit the country’s shores and in the meantime create a state of inertia in terms of their occupational decision making. A banking levy coming into play, given the public sentiment against the sector, also has the potential to encourage financial occupiers to scale back.
Speaking at Cushman & Wakefield’s City of London area briefing, Mark Boleat, chairman of the City Corporation’s policy and resources committee, said: “The extent of regulation is greater than in other centres and business has a duty to respond by helping to change the climate of opinion. For instance, immigration is critical to London, which needs to campaign for immigration policy.”
Changing occupier demands
As well as addressing these broader factors, the panellists said that landlords needed to continue to adapt to attract ever more diverse and demanding occupiers.
Though the specification of City buildings had not changed much in five or six years, Land Securities’ Oliver Gardiner said that occupiers wanted quality and flexibility to attract talent. He also said that cooling, density and efficiency of space was driving productivity, and this was more of a concern than cost reduction.
Cushman & Wakefield’s Andrew Parker pointed out that 30% of demand for space was now from the media and technology sector and Bloomberg’s move to Walbrook Square in 2017 was “rejuvenating the diversity of occupiers coming to the City”.
This evolution is one that is seen as healthy for the longevity of the City market.
Martin Wallace, head of leasing at Brookfield Property, said: “Diversity [of occupier types] is welcome. City prices are now competitive with the West End and there were a wide range of options. It is better that it is diverse because financial services do not operate in isolation and you get an interaction that you don’t get if you are located on a greenfield site 200 miles away.”
There were, however, concerns over two “anachronisms” in the City.
“The west end of Smithfield needs something,” said Helical Bar development director Gerald Kaye. “Having a meat market in the City is an anachronism.”
Lucy Musgrave of public realm consultancy Publica said the City Corporation had done a good job of “unpicking” the traffic and removing gyratory systems that divided the City, but she pointed to the London Wall’s pedestrian walkway as one of several “phenomenal anachronisms” and one that “separates vehicles and pedestrians and does not reflect the way that people use cities anymore”.
Tall is not all
Musgrave also urged the property industry and the City to focus not just on building tall but also on the setting of developments.
“It is phenomenal how much underused ground space there is in the City. You’ve got the highest land values in the world, and 50% of the City’s buildings have been rebuilt since 1997, but we need to make sure that the ground plan gets as much love and attention,” she said.
Spotlight scheme: 22 Bishopsgate
Developer: AXA Real Estate and Lipton Rodgers
Size: 1.4m sq ft
Completion: 2018
The stalled Pinnacle site, now known as 22 Bishopsgate, EC2, is the most high-profile scheme in the City of London.
An Arab Investments-led consortium paid £220m for the site close to the peak of the last cycle in 2007. After spending close to £500m on the project, it was hit by financing problems and concerns over the viability of a tower scheme at the site.
However, the site was bought in February this year for £300m by a consortium made up of British Colombia Investment Management Corporation, PSP, Temasek and a pair of AXA Real Estate managed funds. AXA is acting as a fund and asset manager, while Sir Stuart Lipton’s and Peter Rogers’ Lipton Rogers is development manager.
New plans were unveiled for the site in June and a planning application is expected to be submitted by the end of July. The PLP Architects-designed tower will rise to 912ft over 62 storeys.
The new scheme is 33 ft lower than the previous one. It has been designed to reduce the massing of the building, while providing more regular sized and shaped floorplates to appeal to modern occupiers, with most floors more than 20,000 sq ft.
The scheme will include a public viewing gallery on the top floors, which will be free to the public, as well as a two-storey public restaurant and bar.
Occupiers will also be offered flexible layout options, including internal staircases and winter gardens. Oversized floor-to-ceiling heights will deliver 20% more window space than conventional office buildings.
The developers have also focused on enhancing the building’s environmental and wellbeing credentials, with the property the first in London to adopt the Delos WELL Building Standard. It will also provide more than 1,500 bike spaces.
Comment: Geoff Harris, head of development, TH Real Estate
The grade-A challenge
The City is currently witnessing a shortage of high-quality office space, with vacancy rates falling from 8.4% in the first quarter of 2014 to 5.7% in the first quarter of 2015. In some parts of the Square Mile, the vacancy rate stands at just 2% and demand for contemporary floorplates is continuing to grow, reflecting the City’s continuing success. TH Real Estate is developing 40 Leadenhall Street, EC3, in order to meet modern occupier requirements, bringing to the market 890,000 sq ft of grade-A office space in the heart of the City’s insurance district.
The lack of availability of grade-A offices has inevitably led to rapid rental rises and an expansion of the City’s fringes, particularly given the City’s success in attracting start-ups and SMEs, which need suitable space to grow. This is particularly the case in Shoreditch to the north, Spitalfields to the east and Midtown to the west, which are experiencing rapid growth. Our landmark Steward Building in Spitalfields recently set a new record rent for E1.
The City remains a priority for both property developers and office occupiers, in part due to the City’s historic ties to the financial and insurance industries and its business-friendly attitudes towards planning policy. The demand for large floorplates in the City is an interesting challenge, as we look to develop buildings that are sympathetic to both the City’s ever-changing skyline and its iconic heritage. As part of our 40 Leadenhall Street scheme, we are restoring a grade II listed building at 19-21 Billiter Street, EC3, while dividing the building into a series of simple, elegant rectilinear slices, composed in response to the different vantage points on the London skyline.
Another challenge for the next five years, aside from the expansion of fringe markets, will be the growing demand for the sustainable redevelopment and refurbishment of office space. This is already an important priority as developers look to reduce carbon emissions, maximise solar gain, achieve excellent BREEAM ratings, and address capacity issues for the City’s many cyclists.
