Despite the uncertainty created by Covid-19 over London’s office leasing market and a potential recession, some of the capital’s most established developers are on the hunt for new opportunities.
Their confidence to go out and buy stems from the expectation of a further squeeze on London’s dwindling development pipeline – which is expected to fall to just over 2m sq ft under construction in 2022, according to Radius Data Exchange – and a booming pre-leasing market.
Even during lockdown two sizeable prelets have been confirmed: law firm Covington & Burling taking 86,000 sq ft at 22 Bishopsgate, EC2, and Exane BNP Paribas taking 39,970 sq ft at Great Portland Estates’ 1 Newman Street, W1.
And with around 7.9m sq ft of active requirements in the market, now is surely a good time to be developing – at least for the brave and well capitalised.
“If we had something we could be beginning now, we would,” says GPE chief executive Toby Courtauld. “Two to five years out we are going to be looking at a supply shortage because unquestionably there will be a bunch of investors who look at the current conditions and run for cover, or they don’t have the financial wherewithal to build up schemes that they have planning for, or just don’t want to take the risk. That will play to those who are able to start on schemes.”
Courtauld wants GPE to be one of those that can start. He says the business has three schemes on which it might push forward the timeframe, subject to board approval and due diligence, to take advantage of tight supply in the market. It is also looking to bolster its pipeline after being a net seller between 2017 and 2019.
‘Best to carry on developing’
Derwent London is ready to start developing out its pipeline too and is weighing up whether to kick-start its project at 19-35 Baker Street, W1, next year.
“Our view is that with a limited supply it would be best to carry on developing,” says chief executive Paul Williams.
Nuveen, which is continuing to push ahead with its Gotham City scheme at 40 Leadenhall, EC3, on behalf of M&G, is also out shopping for new sites.
Head of offices Nick Deacon admits that the business, known for City schemes such as 70 St Mary Axe, EC3, is venturing further afield in the hunt for development opportunities. He says Nuveen is actively looking around the South Bank and has even explored opportunities as far out as Brixton.
“We are seeing this as an opportunity. I think the investment market is not reacting well to voids,” Deacon says. “Major occupiers were very concerned [prior to the pandemic] about the future supply of accommodation for their business needs and frankly we have not seen a let up on that theme.”
He adds: “On 40 Leadenhall we are still very much active on the pre-leasing. We are presenting to a large number of very significant organisations, both professional services and lawyers. The beauty with pre-leasing is that developers are very often very happy to provide flexibility – the ability to take more space or hold back space prior to practical completion. So, I think that is how the developer market will deal with Covid-19 in the short term.
“An increased lack of choice is going to lead to continued levels of pre-leasing in the market. Big occupiers are very attuned to that and are more intelligent now than they have ever been on the risk of not finding the appropriate space.”
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