Hollywood star Cate Blanchett’s S&M-themed play When We Have Sufficiently Tortured Each Other at the National Theatre may have had audiences flocking to the South Bank lately, but the halo strip of land between Lambeth and Tower Bridge has also been attracting some serious interest – in the form of property investment – with nearly £1bn sunk into the London submarket last year.
This included Landsec ending its self-imposed acquisition hiatus with its purchase of 25 Lavington Street in December for more than £87m.
However, the biggest deals in 2018 included US firm Starwood Capital’s acquisition of South Bank Central for £255m and Slovakian developer J&T Real Estate’s £100m purchase of Delancey’s £400m residential scheme overlooking the Globe Theatre, plus M&G swooping in to grab the Financial Times’s current headquarters for £115m, according to data from Knight Frank.
And the clamour for opportunities in the area appears set to continue, with Landsec, Canary Wharf Group and Stanhope all understood to be in the running to acquire a £200m site being sold by Savills on behalf of Guy’s and St Thomas’ NHS Foundation Trust down by Waterloo station, and Black Pearl, a subsidiary of Malaysian property development company IGB Corporation Berhad, bringing in CBRE last week to advise on its funding and delivery options for a £1bn scheme.
Why so hot right now?
The area, already a cultural heartland thanks to the theatres and museums, has also become a foodie Mecca, with Borough Market, high-end restaurants at the Shard and offerings from celeb chefs Gordon Ramsay and Mark Hix.
It is also about to get a retail boost, with the upcoming development of Borough Yards by Meyer Bergman.
And it is this that is attracting office occupiers, according to HB Reavis head of development Kiran Pawar.
“It’s an area of London that’s changing quite a bit, with things like Flat Iron Square making it quite vibrant,” he says. “It has a lot of character, which is drawing people in. So in terms of wanting to attract talented young individuals, for occupiers it’s seen as an exciting area to be part of now.
“And the shortage of quality office space in the area means that any space that becomes available is usually taken up pretty quickly, so it’s clearly a great area to be investing in.”
Nicholas de Mestre, head of investment – London portfolio at Landsec, agrees. He points out that the area provides occupiers with a mixture of different things, compared with the “very glass and steel, very office-focused” City.
He adds that, because of this demand from a diverse occupier base for the limited office space, “rents have effectively converged with the City – so that’s good for a developer”.
“The outlook for rent in Southwark, simply because it doesn’t have a vast amount of development coming through, is driven by demand and this looks resilient. It certainly looks like it should have a fairly stable outlook and that’s something we like because it makes our returns hopefully a bit more predictable than places that are a bit bouncier.
“When we acquired Lavington Street we looked very carefully at what other development opportunities were coming through.”
In the fourth quarter of last year the area saw rents nudge up 2.5% on prime office stock, compared with Q4 2017, according to Radius Data Exchange. The data provider currently reports that availability for SE1 and some of SE11 sits at around 5.4%.
South Bank developments
Landsec was one of the first to start developing flagship buildings on the South Bank, delivering the Blue Fin Building in the early 2000s, alongside Native Land, which developed the residential complex Neo Bankside.
Then Sellar finally began delivery of the Shard in 2009 – after a delay of several years as a result of a lengthy planning process and public inquiry, dramatically raising the area’s profile – and brought in substantial overseas capital to the South Bank property market for the first time.
“Without a doubt the Shard has become an international landmark and a beacon for this part of London, which has been overlooked in the past,” says Sellar chief executive James Sellar.
“Not only did the Shard reflect government policy on density at the time, its unique character also reflected the edgy and (at times) rebellious nature of Southwark over the years.
“Importantly, it showed what could be achieved in a somewhat unloved part of London.
“The success of Shard Quarter in attracting an incredibly diverse range of office occupiers is now being felt – many businesses that would once not have considered moving here are now doing so.”
Sellar, with its Singaporean partner Great Western Developments, is now aiming to have the same impact at Paddington, with the Paddington Cube, as it has had on Southwark.
“There is a huge similarity between Shard Quarter and Paddington. Both are adjacent to a major rail terminus; both schemes are located in areas of under-development and under-investment; both are next to major hospitals; and, of course, both have been designed by Renzo Piano,” Sellar says.
“I believe our development will do much to help breathe life into this part of Paddington, making it a far more attractive to businesses, tourists, the traveling public – and, of course, to the denizens of an area on the doorstep of Hyde Park and Mayfair.”
The future south of the river
While the area may be lacking in office and retail space – and is still one of the areas of central London least exploited by developers and investors – it won’t be for long, with 4.9m sq ft in the development pipeline at the end of Q4 last year, according to Knight Frank.
Native Land’s Bankside Yards is one of the more advanced, with enabling works in the offing on part of its 5.5-acre site.
The developer, which is based in Bankside, is aiming to create a new centre for the neighbourhood, with an emphasis on quality and lifestyle, development director Jay Squier says.
Meanwhile, HB Reavis expects to submit a planning application for Elizabeth House before the end of Q2; and Sellar, in partnership with Greystar, Columbia Threadneedle and CIT, is looking to submit a planning application in the near future for the redevelopment of a 96,582 sq ft site, which includes its former home, down the road from Shard Quarter, to create around 140,000 sq ft of flexible office and co-working space.
“We do believe it’s got potential for the future and it has that resilience from not being over-developed,” de Mestre says.
“As it matures and the occupier base gets a bit more certain and the developments get larger, giving that ease of scale, it will bring in international investment.”
Main image © Ben Perry/Rex/Shutterstock
To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette
