James Roberts, head of commercial research at property consultants Knight Frank, overviews central London’s next generation of development
Central London’s commercial property market is being shaped by two realities. The capital’s economy is rebounding, but recent years have seen the volume of new development fail to keep pace with demand for office space.
While on the face of it the London skyline is littered with cranes, more than 40 per cent of office space currently being built is already let to tenants ahead of completion. If we look at buildings completing this year the figure is close to 50 per cent let.
Presently there is 4.5 million square feet of office space under construction on a speculative basis, without a tenant yet secured. However, the last year has seen firms in central London take 5.5 million sq ft of new-build office space, partly by raiding the pipeline and acquiring space under construction, so clearly there is a mismatch between supply and demand.
The situation is of particular concern given that demand for offices is growing. A new wave of technology and creative firms has been expanding in the capital, forming the largest source of demand for the last three years. Tech giants Google and Amazon have both acquired new London headquarters and then decided they needed to acquire additional space on top.
Also, after years in the doldrums, the financial sector is again taking office space, with major deals in the City by fund managers Schroders and M&G, and Dutch bank ING. With financial demand re-emerging, other City industries drawing work from the finance industry, such as law and accounting, have been more active in the office market.
A new wave of technology and creative firms has been expanding in the capital, forming the largest source of demand for the last three years
Consequently, London is faced by a new wave of demand from the technology sector, just as its traditional financial and business services industries are starting to re-enter the office market. Supply is consequently under pressure. Vacant office space currently equates to 7 per cent of built stock, down from 11 per cent five years ago.
Given these supply and demand pressures, property developers are readying the next wave of projects.
Former industrial districts can provide developers with a blank canvas on which to build in scale. Another option is redeveloping older office buildings which are approaching technical obsolescence. There was a building spike in the late-1980s and early-1990s, and many of the buildings from this era are ripe for redevelopment.
Demand up to now has been strongest in trendy districts, such as Shoreditch and Fitzrovia, which are popular with technology and media firms. However, increasing financial demand will encourage developers to look again at the traditional core districts, such as the area around the Bank of England and Mayfair, which is popular with hedge funds and private equity firms.
WHERE IT’S HOT TO BUILD IN THE CAPITAL
Fortunately for London’s rebounding economy, the capital has no shortage of what the property industry calls “oven-ready” sites. Here’s a selection of future hotspots:
Recently approved by the Secretary of State, the 1950s Shell Centre is set to be redeveloped as One and Two Southbank Place, with 550,000 sq ft of office space, 764 homes and 80,000 sq ft of retail space. A redevelopment of the nearby Elizabeth House site will deliver 740,000 sq ft of office space and 142 homes adjacent to Waterloo mainline railway station.
NINE ELMS AND BATTERSEA
The Battersea Power Station site is to see the development of 3,500 new homes, 1.6m sq ft of offices, plus retail and leisure, on the 42-acre site. Work on the extension of the Northern Line to Nine Elms and Battersea Power Station is expected to begin next year. Also the United States and Netherlands embassies are planning to relocate to new buildings in Nine Elms.
Demolition and redevelopment of older stock on and around Victoria Street is resulting in a transformation of this area. Next year will see the completion of the Zig Zag Building on Victoria Street, delivering 188,000 sq ft of offices and 37,000 sq ft of retail. Near the railway station, the first phase of the Nova scheme, comprising 480,000 sq ft of offices, 80,000 sq ft of retail and 170 luxury apartments, is under construction, with another 125,000 sq ft of offices and retail to follow.
The White Collar Factory on City Road is to be an urban campus in London’s Tech City, consisting of five buildings set around a courtyard. The project comprises 215,000 sq ft of offices and 11,000 sq ft of retail. The urban campus concept is to be explored further with the proposed regeneration of the historic Smithfield Market. The master plan for the Smithfield Quarter is for 340,000 sq ft of offices in three buildings above retail and leisure. Vacant since a fire in 1964, The Goodsyard site off Shoreditch High Street could accommodate up to 2,000 homes, between 300-600,000 sq ft of offices, as well as shops and leisure facilities, and 1.8 hectares of public areas.
100 Bishopsgate is a scheme comprising a five-storey podium suited to trading floors and a 40-storey signature tower. It is set among the City’s skyscraper cluster, between 30 St Mary Axe (aka The Gherkin) and the Salesforce Tower, joining other iconic towers such as 20 Fenchurch Street and 122 Leadenhall Street. In the next few years, several of the 1980s phase-one buildings in the Broadgate estate will see lease expiries, freeing them up for redevelopment. This will provide an exciting new phase for the world-famous City estate.
Formerly known as the International Press Centre, 1 New Street Square will consist of 243,000 sq ft of offices over 16 floors and 5,000 sq ft of retail. Midtown’s future mega-project will be the development of the new Goldman Sachs headquarters. This will be a one million sq ft building at Plumtree Court and Fleet Buildings, and is expected to complete around 2017.
MAYFAIR AND ST JAMES’S
Individual sites tend to be relatively small in this district, but as buildings here command the highest rents in the Western world, the developments are very exclusive. Up-and-coming schemes include 1 New Burlington Place with 80,000 sq ft of offices, 8 St James’s Square at 65,500 sq ft, and 1 and 2 St James’s Market at 214,000 sq ft. Just to the north of Mayfair is the new Marble Arch Tower scheme which will consist of 57 luxury homes and 84,000 sq ft of offices.
Near the Tate Modern gallery, a proposed new scheme at Ludgate and Sampson houses, to be called The Bankside Quarter, will include 1.5 million sq ft of offices, 489 homes and retail space. The nearby 20 Blackfriars Road site has a proposed 42-storey residential skyscraper scheme and a neighbouring 23-floor office building.
There are plans to further expand the Paddington Central estate with 4 and 5 Kingdom Street, which will total 350,000 sq ft of office space. The 55 North Wharf Road office scheme will add another 260,000 sq ft of office to stock. The final phase of the Merchant Square scheme will deliver a further 167,000 sq ft of office space, while as a result of Crossrail, the Triangle site on Bishop’s Bridge Road could see 200,000 sq ft of offices developed.
To the east of the established Canary Wharf estate, Wood Wharf will consist of 2.6 million sq ft of office space, 340,000 sq ft of shops and more than 3,000 homes set around a water park.