The truth behind the stars of London’s skyline
Look up from the London streets and you can’t miss the new stars of the skyline. But while your eyes are drawn to buildings such as the Shard or Heron Tower, London businesses are more worried about the costs of being a tenant.
So far, the occupancy rates of some of these mighty constructions are below expectations. A combination of economic slowdown, funding difficulties and future uncertainty means that floors are empty. In some cases, building has actually stopped.
To gauge the future of the London real estate market for skyscrapers, LondonlovesBusiness.com asked tower owners and industry experts about the prospects for five of the most well-known skyscrapers.
Heron Tower: 46 storeys
Status: Completed six months ago
Developer: Heron International
Tenants: Only 8.5 of 36 floors filled. Partners Group, City Credit Capital, Chicago Trading Company and Snoras among tenants.
Even though the tower isn’t even a quarter full, property pundits think it is doing well.
“[Developer Heron International] should be very pleased,” says Dan Bayley, MD of central London for BNP Paribas Real Estate.
“The Tower has managed to bag a few traditional lettings, at a time when it’s got at least five skyscrapers giving it tough competition. And that’s not to mention the economic crisis, where demand is unimaginably subdued.”
Anthony Epenetos, head of agency at the Lorenz Consultancy, thinks that “there will always be a period of time dedicated to marketing to secure securing tenants.
“Even though only 25 per cent of the space is currently let, they may have strong interest or be under offer on several other floors,” he said.
News that Heron International is asking for record-breaking prices (for the City of London) of £1,600 per sq ft for residential space seems to confirm the general confidence in the Tower’s desirability.
Speaking about the towers earlier this year, Peter Ferrari, managing director of property at Heron International, said: “Heron Tower is a truly special building, providing the very highest quality office space right at the heart of the City. Interest in the development remains strong and we look forward to announcing further lettings in due course.”
The Shard: 72 storeys
Location: London Bridge
Progress: Under construction
Developer: Sellar Property Group
Tenants: Shangri-La hotel takes up 18 storeys. Cancelled an early deal to install TfL as a tenant
The Shard has been creating awed headlines almost non-stop since the first plates of glass were laid in London Bridge, the latest news being that the tallest crane in Europe was used on its construction.
But will the glass building deliver?
Construction of the Shard is spearheaded by Irvine Sellar, an East End businessman who has Qatari investors backing him for his dream project.
Sellar was so confident about Shard’s success that he cancelled a deal with Transport for London to become a tenant.
Amid rumours of PwC being interested in the property, the only deal in Sellar’s pocket is Shangri-La, the luxury hotel group that will take 18 storeys of the building.
BNP Paribas’s Bayley says: “The Shard might have only roped in a few tenants, but its location on the South Bank and its proximity to Tate Modern will appeal to the ego of grandiose companies.”
The Pinnacle: 64 storeys
Location: Bishopsgate, London
Progress: Construction stalled despite £500m rescue package from HSBC
Developer: Arab Investments
London’s problem child skyscraper is still an uncertain prospect.
Touted as the tallest tower in the Square Mile, construction came to a grinding halt.
Its Saudi-backed developer, Arab Investments, ran out of money.
“There is a huge credibility gap with the Pinnacle,” Bayley said.
“No one really knows what’s going on with it. You’d find many a press release and comment about how great the Pinnacle will be. But you won’t find it as an option in the radar of tenants, simply because they see there’s no progress in terms of construction,” he added.
Although the Pinnacle has a £500m rescue package from HSBC, to fulfil the bank’s condition of securing advance lettings on a quarter of space is going to bevery difficult.
“In the current economic climate, developers have to balance securing funding versus deciding when to bring new office space online to prevent over supply in the market,” Epenetos said.
Walkie Talkie: 36 storeys
Location: Fenchurch Street
Status: Under construction
Developer: Land Securities
Builders of the Walkie Talkie say that construction is full steam ahead with their joint venture partner Canary Wharf Group.
“We’re on track to deliver the scheme in 2014 to meet the anticipated supply constrained market,” a spokesperson for the builders said.
However, he did warn about the occupancy in Central London. “We’re seeing a good level of enquiries but in some instances some occupiers are taking longer to make decisions,” he said.
Speaking about the doubts surrounding London’s skyscrapers, Land Securities’ spokesman pointed out that there is a difference between “those actually being built and those that are being talked about but where work is not taking place.”
“The ones being built now are not for today’s market but for 2014-2015 and they are beginning to secure pre-lets already – three years before. We anticipate a large number of leases coming up for renewal and as a result anticipate demand,” he added.
Also, Great Portland Estates and Brookfield will go ahead with their plan of building a 40-storey skyscraper at 100 Bishopsgate, provided they get advance tenants signing up.
Cheesegrater: 48 storeys
Location: Leadenhall Street, London
Status: Under construction
Developer: British Land and Oxford Property
Tenants: Aon is to take 10 of the larger floors amounting to around a third of the 610,000 square foot building
To keep any unprecedented financial debacle at bay, builders of the Leadenhall Building aka “Cheesegrater” has resorted to pre-letting.
In May this year British Land announced that it had agreed non-binding Heads of Terms
with Aon Limited for a 191,000 sq ft pre-let at the building with options to take up a further 85,000 sq ft.
Tim Roberts, head of offices at British Land, said about its portfolio: “Despite the challenging economic backdrop, we remain positive about the long-term outlook for London property and are confident about the future prospects for our Offices portfolio.”
British Land, which is the developer behind the building, feel that construction is progressing well, with practical completion on schedule for mid-2014.