On a recent Monday afternoon, visitors leaving the serenity of St Paul's Cathedral in the heart of London could walk just a few steps north before being hit by a blast of noise: the almost deafening sounds of a drill giant hydraulic A few steps ahead, sparks flew from another construction site.
The City of London, Britain's historic financial district, is awash in construction, the intensity of which is not expected to abate anytime soon.
The City of London Corporation, the borough's governing body, has approved 10 new office towers, including one that will surpass the height of all others in the area, known locally as the Square Mile. In total, more than five million square feet of office space is under construction, with another five million square feet in the pipeline.
The plans, which will transform the borough's skyline, are a big bet on the future of the workplace after two major shocks to the commercial property sector: the Brexit referendum, which derailed development plans, and the Pandemic closures that left city streets deserted..
The city's office vacancy rate was 9.5 percent in the third quarter of this year, according to research by real estate services firm JLL, notably higher than the long-term average of 5.7 percent. But for new construction, the vacancy rate was only 1.4 percent.
Developers face a “favorable environment” despite economic challenges such as inflation and high interest rates, said Chris Valentine, director of JLL's London head office.
“Much of the existing development pipeline in the City of London is already pre-let, on offer or in negotiation,” Valentine said. He added that demand for “best-in-class” offices, with green credentials and the latest amenities, would continue in the second half of this decade.
The City of London Corporation is basing its growth estimates on a report it commissioned which found that a large expected rise in jobs in the borough would support demand for office space regardless of whether hybrid working remained the norm.
“There is still capacity to do more,” said Shravan Joshi, chairman of the corporation's planning and transportation committee. By 2040, the City of London will need 13 million square feet of additional office space, he added.
Despite the optimism, there are risks. Construction could lead to a glut of older office buildings that companies will abandon. And there is always the threat of corporations being drawn to other business districts, including Canary Wharf, two miles to the east.
Before the pandemic, some 540,000 workers commuted to the City. There are now more jobs in the district (around 617,000) but fewer people go to the office. The number of people entering and leaving London Underground stations on the Square Mile is, on average, about three-quarters of pre-pandemic levels.
The City of London Corporation is trying to attract workers and visitors to return. This summer, the corporation started a website to promote the city's art galleries, historic sites and other attractions. Although the district is still largely occupied by financial and professional services companies, the new buildings are designed to attract small and medium-sized tenants, particularly technology companies.
Officials are also encouraging developers to make space in the towers available to the public, inspired by the success of the Sky Garden on top of the district's “Walkie-Talkie” building. Another building, the tallest in the city, opened with an observation gallery on the 58th floor called Horizon 22, and one also opened atop the new neighboring tower.
Demand for sustainability is strong and four-fifths of the district's buildings already meet the highest standards, Joshi said. Older buildings are struggling to be occupied and in response the corporation is relaxing the rules to convert them into places for culture, higher education or hospitality.
Still, the general approach is clear. “Our basic policy is position first,” Joshi said.
That stance was apparently vindicated this summer by news that HSBC would move its headquarters back to Square Mile more than two decades after the bank was lured to Canary Wharf. About six months earlier, law firm Clifford Chance had also said it would move to the city from Canary Wharf.
“These traditional firms in the city, like law and banking, look to the Square Mile as their cultural home, their heritage home, where they started,” Joshi said.
After more than three centuries as Britain's financial center, the City of London struggled since the 1990s to compete with Canary Wharf, former docklands that were redeveloped to build skyscrapers that could offer much more space for banks and their flats. commercial. Expansion on Square Mile was thwarted due to proximity to St. Paul's and other historic buildings.
In the early years of Canary Wharf, many companies were reluctant to move there and the project almost failed amid a recession and the 1992 bankruptcy of Olympia & York, the company behind the development. But better public transport links arrived and businesses followed suit.
In the early 2000s, Canary Wharf was bustling with activity, said Lucy Newton, a professor of business history at the University of Reading's Henley Business School. “It took a while to get off the ground, but it had the support of financial institutions that felt they had overtaken the city,” she said.
Three decades later, the tables have turned. Planning rules for the Square Mile have been relaxed by successive mayors of London and towers have gone up. There are still regulations protecting views of St. Paul's and the Tower of London, and Mayor Sadiq Khan has ordered the borough to limit towers to certain areas, but density is set to increase.
“You can't build because you're taking up a square mile, so you can really only build,” said Chris Hayward, the corporation's policy chair and Joshi's predecessor as head of the planning committee. In his three years leading that committee, “we built more tall buildings on Square Mile than ever before in the history of Square Mile,” he added.
Just five months ago, the City of London Corporation approved a 63-storey tower with 800,000 square feet of office space and space on the upper floors for public events. Schroders Capital, the investment manager behind the project, described it as “a clear, long-term commitment to the City of London”.
To bolster its growth prospects, the city is trying to shed its image as a stuffy corporate neighborhood by attracting more people to spend time there in the evenings and on weekends.
Square Mile has about 9,000 residents and officials are persuading visitors with more leisure activities and well-known restaurants such as the Wolseley, and highlighting its cultural attractions, including a new home for the Museum of London.
“We've never considered ourselves a residential city,” Hayward said. “The stimulating residential development around the city actually limits business growth, that business growth that we want.”
Wolseley hopes to be part of that growth. For its second location, the high-end restaurant chose a spot near the north side of London Bridge, a gateway to the City. The company is also betting on a greater return to the office and on a greater number of tourists and residents who support the restaurant, which is two-thirds larger than the original.
“I think over time most people will go back to their offices Monday to Friday,” said Baton Berisha, CEO of Wolseley Hospitality Group.
Kate Hart, executive director of the business improvement district where most of the towers are clustered, works with companies in the area, which have about 80,000 employees. Her area is still littered with empty shopfronts, including Leadenhall Market, a protected monument.
“There is a real push to get people back into the office,” Hart said. But they need to see a benefit in commuting, he said, adding: “You can't have that vitality if you don't get that workforce back.”
Even as more planning applications come in, not everyone is enthusiastic. The developers of 1 Undershaft, the building that will be the tallest, sent their architects back to the drawing board this year to tweak the design, seven years after approval was granted for the tower.
And Landsec, one of Britain's largest commercial real estate firms, with more than £10 billion in property assets, is moving away from the City of London. In the past three years, it has sold £2.2bn worth of office properties across London, almost all of it in the City, halving the company's assets there.
Landsec is moving to the West End and an area close to Waterloo, London's busiest train station. Those neighborhoods have “a lot of bars and restaurants and the kind of mixed-use nature that makes them attractive to a much broader range of people than just people who come to an office to work,” said Remco Simon, the Chief Strategy and Investment Officer at Landsec.
But Landsec is not leaving the City. The company owns One New Change, one of the largest commercial spaces in the district. The shopping center has been affected by the departure of big brands and most of the shops on the ground floor are empty. Landsec has reversed some of the downward momentum by adding a Formula 1 arcade, and the rooftop restaurant overlooking St Paul's Cathedral remains popular.
And it's still open to the potential of some office space there. Last month, Landsec received approval to demolish a building it purchased in late 2020 and replace it with a 23-story tower with office and retail space. That said, “we haven't committed to building the building,” Simon said.
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