Movers and Shakers: Who’s developing London?

By Paul Norman - Friday, September 14, 2018 14:12

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London is continuing to develop the offices, shops and warehouses occupiers and investors demand but is having to be innovative in terms of the flexibility and connectivity offered, while opportunities to buy land and stock are increasingly rare. They were the key themes at a Movers and Shakers debate this morning that heard from key players across the commercial development space in the capital.

The regular Movers and Shakers property networking forum debate at the Dorchester hotel at Hyde Park was this time focused on what is being developed in London at a time when there are significant concerns around political threats to market fundamentals as well as drags caused by problems with pollution and underinvestment in infrastructure.

Richard Yorke, CoStar’s UK director of Analytics, set the tone by outlining the latest CoStar data on the London office market which painted a picture of a particularly strong time for office stock delivery alongside record investment and positive absorption figures.

Leonie Olivia, senior director, planning at GVA, moderated the debate and began by asking each panelist how their businesses were finding the London development market.

John Burns, chief executive officer at Derwent London, said the market had surprised on the upside “all of us since the [EU referendum] vote”.

“We have seen £65m of rent let since and there has never been a busier time for us in terms of leasing. And it is all about expansion in the areas we are focused – Fitzrovia and the tech belt. There is considerable demand and we have been prepared to put money down and build speculatively as the enquiries are out there.”

Burns said around 12 to 15 international companies are looking for 100,000 sq ft or above in its locations at present.

In terms of what occupiers are looking for Burns said: “They are looking for transport and communication but choices are not driven by senior management any more, but by the talent pool and their interest in local communications and amenities. We will see rental growth I think going forward but it will be modest.”

Burns added that another dynamic for listed real estate developer/investors was “this is though the hardest time to buy”.

In terms of Brexit Burns suggested that it would be foolish to try to guess how negotiations will pan out but said the REITs would adjust to the outcome as they were all “well financed and prepared”.

He added: “We will have to adjust.”

Tim Roberts, head of offices and residential at British Land, said firstly that if you are an Asian investor looking at London for instance it clearly still looks a safe place to invest.

British Land is pushing on with a major development pipeline but not targeting new development opportunities, with a focus on campuses.

“We are 64% prelet or under offer across our major London development pipeline. What we have done is not sit on our hands and moan about Brfexit but carried on and gone about our business continuing to add performance.

“We have focused on campuses in London as well as brought forward 130,000 sq ft of flexible space in our Storey flexible space business.”

Roberts said 80% of this Storey space was let and it is at present attracting a premium 48% higher than traditional space.

“We expect this to fall back to around 20% in time. We will grow this part of the business as it is meeting a structural growth in SMEs and it is what customers want.”

Focusing on retail Roberts said it is clear there is “too much” in the UK and that was playing out but BL believes prime retail will thrive.

This is particularly the case when it is on strong transport nodes as with the major retail schemes it is bringing forward as part of mixed use developments at Broadgate and Canada Water.

“The focus is on mixed-use. As a retailer you will make money in these areas.”

Going forward Roberts said BL will continue to focus on three areas in London: “We will develop out our pipeline of campuses, we will invest in areas where we can build residential and this will be both build to sell and build to rent, and we will grow the Storey business. This will focus on the existing portfolio but we have bought a building for it too now.”

Alan Holland, business unit director at SEGRO, welcomed a changing perception, both across the industry and government, that industrial can contribute positively to communities and welcomed the GLA’s commitment to focusing on protecting industrial land.

In terms of the real estate fundamentals Holland said that clearly industrial was in a good place with rents growing, a lack of supply and a desire among customers to upgrade space.

“The question is how do we grow?” Holland said.

He said he believed the industry has to respond with innovation in particular around the mix on site of residential and industrial.

“We need to dare to dream as we look to mix jobs and homes and we need to look at an intelligent use of strategic industrial land”.

In terms of intensification Holland said multi-storey development for instance was already happening in Europe and in Asia.

Juliemma McLoughlin, chief planner – development enterprise and environment, said the GLA did have pre-applications for mixed use industrial and residential that are being considered and said planning officers have been to Munich and Brussels on fact finding missions to see multistorey industrial development and been impressed.

“We want to encourage innovation and design,” she said.

In terms of the New London Plan, which Mayor Khan published a draft of in August, she said work would begin in earnest following the responses in January for 11 weeks with a break in May for Easter with the inspectorate’s recommendations published in July. That would mean it would likely be out before February 2020, narrowly avoiding the purdah period for the next mayoral election.

pnorman@costar.uk

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