Amnesia? Deliberate neglect? The property business has overlooked the Borough/Lambeth North area for years. It is the forgotten corner of Zone 1 – the part of central London nobody can remember to remember.
But not for much longer. SE1’s days in the shadows are coming to an end. A series of eye-catching investment buys and the prospect of new commercial development are galvanising values in the area’s 4m sq ft office market.
The deal that set investors talking came at 1 Long Lane, Bermondsey. The 24,000 sq ft office block opposite Borough Tube station was offered at a guide price of £9.5m, but later sold (to Threadneedle) for close to £12m. JLL advised the housing association vendor but declined to comment, as did Threadneedle, which is said to be preparing an office refurbishment.
Julian Hind, partner at Farebrothers, explains: “In SE1 you’re looking at capital values of just over £500 per sq ft. Compare that with well in excess of £1,000 for a similar office refurbishment opportunity at the tatty top of Tottenham Court Road. So there will be more deals to follow. We already know plenty of investors and developers are looking at Borough High Street, Marshalsea Road and Long Lane.”
Should they succeed in buying into SE1 – and the opportunities are limited – they can claim a share of a growing office market, one that is mopping up surplus demand from around Zone 1.
It’s not a large market – Borough West’s total office stock is 1.78m sq ft and Bermondsey’s is 1.97m sq ft, says Farebrothers, out of a 21m sq ft South Bank scene – and the opportunities are mostly smaller (10,000 sq ft upwards) and overwhelmingly grade B. Yet there is considerable scope for rental growth off the back of low capital values.
Says Hind: “You have to tease out the deals, but the existing stock is second-hand, and we haven’t seen high-quality refurbishment yet, so today’s rents in the late £20s to £35 per sq ft contrast with refurbishment opportunities targeting £45-55 per sq ft. Developers know that if they can buy sites at sensible prices, they have a real chance to reposition the market. They can feel confident because the entry price to this market is so much lower. If they can get in at a sensible level, the returns will be good, even if the headline rents are not so strong.”
Names said to be sniffing out opportunities include CBRE Global Investors, Cordea Savills and Helical Bar.
So how much is in the development pipeline? “Naff all,” confesses Hind, but he is keeping an eye on Threadneedle and on prospects for office development at the 40,000 sq ft Brandon House, Marshalsea Road, being sold by Crest Nicholson. CBRE is advising on the sale. “Brandon House will be an interesting test of the market,” he says.
The office pipeline may be small – but the surge of creative-media occupiers priced out of Shoreditch and tempted by the cosmopolitan hipness of Bermondsey and Borough is creating real demand.
Dan Hanmer, senior director for Southbank agency at CBRE, says: “The Holy Grail for London occupiers is office space under £50 per sq ft, and with Shoreditch now saturated, occupiers are heading to Southwark, which is getting cool and trendy, the kind of location Generation Y university leavers want so that they can work close to home.
“We’re not there yet – this area will take another three to five years to change – but look at the geography. It’s surrounded by big regeneration areas in Southwark, Nine Elms, Waterloo, Elephant & Castle, Blackfriars, Southwark. Another three years of a robust central London lettings market and we’ll see strategic landbanking.”
Those buying and selling in SE1 at present praise the low entry prices, quirky properties and fresh, unprejudiced demand and hint that Southwark could soon resemble Shoreditch. But all advise caution, and downplay the medium-term significance of infrastructure improvements, such as a potential Bakerloo line extension.
Said one recent high-value vendor: “It’s not about infrastructure. This is about demand and supply opening a new front in the London office market.”
Out of the shadows? SE1 may soon be in the spotlight.
More planning
Bermondsey could soon become one of the first districts in London to pioneer neighbourhood planning. The neighbourhood plan, written by local groups, provides a finer level of detail and can add to the mayor’s and Southwark’s office or residential allocations, but cannot decrease them.
After years of debate, the boundaries of the Bermondsey neighbourhood were settled in 2014. Controversially, they exclude Tooley Street, Tower Bridge Road, Guy’s Hospital and London Bridge Station, and focus on Long Lane. Local groups were not happy and talks continue with Southwark council over boundaries, and which group should lead the process. A decision was due as EG went to press.
Meanwhile, the council is flagging up prospects in the London Bridge Bankside opportunity area. The latest plan is to transform Blackfriars Road and create a boulevard that connects the river to Elephant & Castle. The council is working with Transport for London and 12 developers to deliver a major public realm project in 2015 which will transform the area and link the two opportunity areas. Blackfriars Road is set to create 10,000 jobs, 2,000 new units and 1,500 hotel rooms over the next five years.
