City of London’s Construction Lull Ends as Rising Rents Drive Developments
City of London office construction is set for a resurgence after a lull of more than a year as the first of at least four projects breaks ground in 2011.
Bloomberg LPâ€™s plan to build its new European headquarters in the financial district is the biggest City development to be announced since UBS AG agreed in August to add a property to the Broadgate complex. Bloomberg, the New York-based parent of Bloomberg News, said yesterday that the project will comprise one building with more than 500,000 square feet (46,000 square meters) of space and another â€œspeculativeâ€ property.
City of London real estate is becoming attractive again to developers such as Land Securities Group Plc and British Land Co., both of which revived office projects in October to take advantage of rising values and rents. Prices have recovered since August 2009 as the weak pound fueled demand from overseas investors and financial-services companies competed for a dwindling amount of new office space becoming available.
â€œA little bit of confidence is returning,â€ Elaine Rossall, head of central London research at U.S. broker Cushman & Wakefield Inc., said in an interview. â€œThose companies seeing their prospects improving are starting to accommodate that growth.â€
UBS, the largest Swiss lender by assets, will initially pay annual rent of 54.50 pounds ($86) a square foot to lease its new 700,000-square-foot building at Broadgate, the City of Londonâ€™s largest office property. Average rents in the district will increase about 9 percent next year to 60 pounds, according to DTZ Holdings Plc, a London-based property broker.
Aon Corp., the worldâ€™s largest insurance broker, occupies five office buildings in the City and aims to move into a single building in the district, said Katherine Conway, a spokeswoman for the Chicago-based company.
Work on Bloombergâ€™s new property, to be built on the Walbrook Square site close to the Bank of England, is scheduled to start in 2012 and the project is expected to be completed three years later, yesterdayâ€™s statement showed.
Bloomberg, which has about 150 offices around the world, in most cases is a tenant. The company owns its facilities near Princeton, New Jersey, as well as a stake in its current London building. It leases its New York headquarters from Vornado Realty Trust.
â€˜Vote of Confidenceâ€™
The decision to build new City of London offices is â€œa vote of confidence in London and an expression of our desire to get exactly what we want on the site itself,â€ Bloomberg President Daniel Doctoroff said in an interview.
Work on most City of London office projects was halted two years ago. As a result, the smallest number of properties since at least 1980 will be completed this year, U.K. property adviser Drivers Jonas Deloitte said in a report last week.
British Land, the U.K.â€™s second-largest real estate investment trust, revived a plan to build the Cheesegrater tower in the City on Oct. 25. A week earlier, Land Securities — the countryâ€™s largest REIT — announced that the Walkie-Talkie tower development would proceed.
The Bloomberg and UBS projects will increase the amount of new leasing agreements in the City this year to about 6.5 million square feet, DTZ estimates. That would be the highest since 2007 and 20 percent more than the 25-year average of 5.4 million square feet, the company said.
Demand for office space may be fueled by a hiring spree in the financial-services industry. The number of jobs in the City will increase 9.5 percent to 345,000 in 2015 from 315,000 this year, the Centre for Economics and Business Research Ltd. estimated in an October report.
The strengthening demand may drive an increase in building that goes too far, Drivers Jonas Deloitte said in its report.
â€œWe are approaching a tipping point in the City office market recovery,â€ the London-based company said. â€œWithout a strong economy driving healthy demand, there is a real danger that the market swings from too little new space today to too muchâ€ in 2014 and 2015.