London is booming in areas that wouldn’t have attracted interest just a few years ago. But what’s next? We assemble key property figures to get to the heart of what’s driving the creation of these emerging areas
The thing about London
London’s secret is its ability to evolve, to absorb new development, as well as nurture visitors with a cultural, educational and business environment rivalled only by New York.
As the panellists on an EG round table discussed the virtues of the capital, they painted a picture of a city that plays into the hands of investors.
“London is a very powerful city at the moment. Its stability and transparency, all reinforced by an amenable regulatory environment, make it a magnet for international money,” said John Slade, BNP Paribas Real Estate chief executive.
For Nick Searl, partner at Argent, which is leading the regeneration of King’s Cross, London’s trump card is its adaptability.
“Does it really need another major development of 4m sq ft? London does seem to be able to soak that up and it’s not to the detriment of other parts of the city.”
Mark Jenkinson, head of urban planning at Siemens, added: “You go to Beijing and the people there all see London as a world-class city. They want to be like London and they especially want to emulate what they see as our world-class transport network.”
What’s emerging?
A lack of office supply in the capital is a hangover from the 1980s: Canary Wharf and Paddington, once considered “out of town”, have been boosted by a supply shortage.
“I once thought Paddington was a development too far, but it has been surpassed by others,” Slade said. “Yet the change has been incremental.”
Panellists identified emerging sites as King’s Cross. The International Quarter at Stratford City and the South Bank – “a twilight zone 15 years ago, now a comprehensive development”.
Although a capital hemmed in by cranes would suggest that ample stock is on the horizon, Fred Hargreaves, BNP PRE’s head of city leasing, predicted a shortage of quality office stock within 12 months.
“Already that’s the case in the West End, and it’s certainly the case in Midtown. Because it will take probably another two or three years to get schemes ready to go, emerging locations, be they King’s Cross, Stratford or Paddington, have buildings that can be built readily in 18 to 24 months. That actually is more important to some occupiers, because they need to get on with it.”
Developers have an obligation to deliver, said Kevin Chapman, head of UK offices at Lend Lease.
“We’re building at Stratford as quickly as we can. We’ve got an outline planning consent for 4m sq ft and we’re looking to accelerate those buildings as quickly as we can.”
The development of Stratford is part of an eastward sprawl driven by a metropolitan population of 8.6m and a desperate shortage of housing.
“Crossrail’s development is helping that shift, too,” said Siemens’ Jenkinson.
The panellists agreed that the seeming glut of regeneration projects could be sustained because of the various stages at which they were being delivered.
“King’s Cross is established now. It’s agreeing some great leasing deals. Stratford is just about to come out of the ground. South Bank is built.
It may feel like they’re all coming online at once. But I remember when we’d agreed on the pre-lease for King’s Cross, for example. That was 10 years ago,” said Slade. “And they all offer different pricings, different options and different things. There’s a position for all of them.”
The round table heard that far from creating an oversupply, developers were building into a market that has demand.
The picture now
Even with the dose of urban renewal London is enjoying at the moment, the city is at a critical stage: occupier demand is high but speculative development is restrained, and the result is that London doesn’t have the supply.
“The financial crisis took the wind out of the spec market big time,” said BNP PRE’s Hargreaves.
Emerging markets have been driven by the likes of Google and Amazon “growing at unbelievable speeds,” he added.
The occupiers
Emerging areas are capturing occupiers that want to avoid the high rents and prices of established sites and their slow delivery on new builds.
With people and firms becoming more mobile, sites further afield have increasing appeal.
“It’s more important for an occupier not to have to compromise and these new locations provide clear sites where you can build good rectangular floor plates and can build in whatever the tenant wants,” said Hargreaves.
The panellists agreed that emerging sites offer variety and London, the city that masters reinvention, offers them.
Chapman said Stratford, more than many other locations, suited bold occupiers that were prepared to “make a step change in how they operate and use their business to articulate brand value, show how they feel towards their staff, their customers and the environment”.
Graeme Craig, TfL’s commercial development director, explained the reasons behind the company’s decision to move its headquarters to Stratford, where it is taking out 250,000 sq ft.
“We can get a quality building and be the sole occupier, and we’re well connected there.”
And Siemens’ reason for setting up in the Crystal building at the Royal Docks was mainly threefold, Jenkinson said.
The area is a green enterprise district, which means cheaper rates; it is an area of regeneration, which aligns with the firm’s ethos; and it is well connected. “You’ve got the DLR, the Emirates Airline and Crossrail coming as well, he said.”
And there is a further consideration – “There’s a beautiful view. You can’t beat seeing the docks spread out before you.”
Transport
The city has not grasped what the impact of Crossrail will be.
“We’re talking about trains the size of a Eurotunnel train turning up at a frequency that you’d expect for a Tube service,” said Craig.
A prominent theme was how critical transport was to emerging markets. “Canary Wharf wouldn’t have taken off in the way that it did without the DLR and subsequently the Jubilee Line. Stratford is, or will be, about as well connected as anywhere in London.
“Crossrail will suddenly make the Royal Docks a viable location,” Craig added.
Investor friendly
London’s emerging markets are wooing investors, said Slade.
“Foreign money is looking for a safe haven and wealth preservation rather than growth. But the growth-type investors will definitely look at these development situations, and at the buildings when they’re completed,” he said.
“Also these emerging locations will attract, if they’re successful, the wealth preservation investors because you’re going to get good tenants on long leases, and that’s what they want.”
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