A record number of objections have been lodged against a planned new office development on London Wall in the City of London. The proposed scheme, by developer Hammerson, comes up for decision on Monday 27 June, but a report in architectural weekly Building Design suggests it might have a rough ride at the planning committee meeting.
So, which way will the decision go?
Hammerson will be hoping it’s second time lucky. The last proposal for this site was to build a one million sq ft headquarters block for JP Morgan. They went through all the grief of engaging with the Barbican residents, a very vociferous bunch, and trying to accommodate their needs, only to have the financial crisis rob them of their potential tenant. In the fallout from the crisis, JP Morgan ended up buying an empty office block in Canary Wharf, and will be moving there before too long.
The JP Morgan building was criticised for being too big and bulky. The current proposal is much less so. But still, the residents of the Barbican would rather it was smaller still. Hammerson, as a commercial developer, have tried hard with architects Make to design something that doesn’t look all big and bulky, but still delivers a useful amount of new office space.
The problem is, if the residents get their way, Hammerson may well give up, and leave the current derelict 1960s tower block in place. And the City Corporation will stiffen further its resistance to Government plans that would allow offices to be converted to residential use without permission. The corporation tries to maintain the City as a global financial centre that is attractive for businesses, and has always jealously guarded the fact that it can plan new buildings without much squabbling from residents – because there simply aren’t many in the square mile.
In the last few weeks, logic prevailed when culture secretary Jeremy Hunt decided not to bow to pressure from English Heritage to list buildings at Broadgate. Let us hope it will again do so with these plans to bring London Wall into the 21st century.
At the end of last week, English Heritage recommended that the Broadgate office complex in the City of London should be listed. Whatever happens next, this is bad news – for Broadgate’s owners, for Swiss bank UBS, and for London as a leading financial centre.
It’s lousy timing. The planning committee of the City Corporation has recently given permission for the demolition of Broadgate buildings 4 and 6, to be replaced by an impressive new block, designed by architects Make specifically to house UBS. Demolition was to start soon, just as soon as the last tenants moved out of the existing buildings.
The redevelopment will, at the very least, have to be put on ice for two months until culture secretary Jeremy Hunt declares whether to go with the EH recommendation, or not.
The possibility of this listing should also ring alarm bells for the many international investors who have been investing money into commercial property in London. Never mind the risk of your tenant going bust – what about the risk of your building being set in aspic, unable to be renewed?
So let’s spin forward two months, were Mr Hunt to decide that grade II star listing of the existing Broadgate buildings is a good idea. What would that mean?
1) It will stunt the future development of Broadgate
For a start, the presumption would be that any future changes to the exterior appearance of Broadgate buildings would be restricted and minimal. They would need not only planning permission, but listed building consent too. Which would leave the building’s owners with limited options. They could refurbish the interiors of the existing structure; or try to get permission for a redevelopment, which would probably only be entertained behind a retained facade.
Refurbished office space, however well it is refurbished, always attracts a lower rent than new office space; it is also likely to be more expensive to maintain, as it’s not within a structure built to the latest energy efficiency standards. A redevelopment which retained the existing facade would mean a compromise in terms of ideal floor to ceiling heights, and restrict the opportunity to add floors or widen floorplates. There’s plenty of other brand new office space being built, or with permission to build, around the City, so a listing would be a financial disaster for Broadgate’s owners.
2) Important companies will mark the City of London down as a business location
What of UBS? They would probably walk from Broadgate, where their current lease obligations are coming to an end. They might well find suitable brand new office space elsewhere in the City of London, where they have been a committed occupier for the last 25 years. But, if the frustration of planning your new European HQ – only to have it taken from you – is too much to bear, UBS could be off to another, more business-friendly city elsewhere in Europe, such as Frankfurt or Paris.
There could be a knock-on effect, too, on building values, if foreign investors begin to worry their buildings could be listed as well. And that wouldn’t be good news for British pension funds, who have some of their funds invested in UK commercial real estate.
3) It would mean retaining buildings which aren’t that great, are they?
But back to the buildings – are they worthy of being listed? The treat is usually reserved for buildings of high architectural quality. But according to the City Corporation’s planning chief Peter Rees, the Broadgate buildings 4 and 6 are merely pastiche architectural design, watered down with veneers of stone after architect Peter Foggo’s initial concepts were considered too daring for the conservative Square Mile. “To the great chagrin of Peter Foggo – we said the buildings would never get permission unless they were clad in stone,” he told the City planning committee in April, when they approved the UBS redevelopment.
This time around, the story making the national press is all about care homes, and what will happen to the old folk in them if Southern Cross goes bust. The care home operator is in trouble, squeezed by tightening income on the one hand, and substantial operating costs on the other; with the latter including property costs invariably set against massive lending somewhere along the line.
But behind this worrying tale is a repeat of so many other recent stories about banks and property companies investing in an unsustainable – or barely sustainable – bubble. Banks were happy to lend, and property people happy to do deals, confident about (or blind to) the belief in a steady, rising income stream that would cover the costs over the long term.
The thread is common to several companies in recent years who bought, and borrowed against buildings. There were pubs, which once saddled with debt were then passed on to would-be landlords who could never sell enough beer to cover the rent; and plenty of one-off buildings, such as the Citypoint office tower in central London, bought in the good times and cranked up with £535m of debt, now worth probably 20% less than that and with rental income failing to cover interest payments. But these tales had less to do with old, vulnerable folk.
The big shift, according to a piece in the Financial Times, is that local authorities worked out not only did people prefer to stay in their own homes, it was actually cheaper to care for them there. So the income stream on which this house of cards was built, started to look shaky. Southern Cross occupancy fell from 91% in 2006, to 86% in 2010, according to figures published by Property Week.
And while it is only now coming to a head in the mainstream media, the Southern Cross story has been a car crash taking place in slow motion. Back in November 2009, it was reported that Southern Cross was flogging off the family silver – the freeholds of its care homes – to help reduce its debts. When the property market is strong, sale and leaseback may be a good strategy. At other times, it smacks of desperation.
Then, last September, the country’s third largest care home operator Four Seasons managed to extend a deadline to repay £500m of debt, by two years. In February this year, analysts were forecasting problems ahead, though they reckoned it would not be this year. Investec Securities analyst Sebastien Jantet said Southern Cross was “likely to be in breach of its debt covenant in the second half of 2012 and [will have] run out of cash with which to pay the landlords”. And here’s their prediction of the company’s future performance (originally published in Property Week).
There’s no quick fix, and Southern Cross will try to negotiate lower rents with the landlords of the care homes it has sold and now rents back. The deal is by no means done; on June 1, City AM newspaper reported that Bondcare, which owns 40 of Southern Cross’s premises, is not going to support a rescue proposal.
Some say property is a great long term investment – and wonder why so few new shops are being built, despite apparently strong demand in certain locations. Others are worried about the future of our high streets, concerned about issues including ease of parking, and the impact of internet retailing. This salutory tale from the high street in Slough is instructive for both camps.
He tells of a shop unit at 143 High Street, Slough, just two doors along from Marks & Spencer, so in a pretty good spot for passing shoppers, in a pretty average suburban town centre. It was let in 1991 on a 20 year lease at an annual rent of £62,500. Every five years there was a rent review; traditionally rent clauses in leases allow for “upwards only” reviews, and on each occasion – 1996, 2001 and 2006 – there was no market evidence to support a rise.
In 2004, the shop changed hands for £1.43 million – representing an immediate rental return for its buyer of just under 4.5%.
In 2010, with just a year of guaranteed rental income remaining from the current occupier, it sold for £745,000, auctioned on behalf of administrators acting for the property owner. Barnett estimates its current rental value at “not more than £40,000”; that will be established this coming September, when the lease expires.
So, a tale of one shop unit, unloved and unwanted – and worth significantly less than 20 years ago. But here’s the really scary bit, says Barnett: “How many 20 year leases of shops and offices from the early 1990s will soon expire, and the owners – and therefore the banks – will discover the substantial drop in rental value that has taken place.”
Suddenly, the shoe box under the bed looks a very sensible place for your money.
The other day, I hired a Boris bike. It’s been a long-term desire to take advantage of the London cycle hire scheme, but either I’ve been hiking a rather too large bag, or it has been raining, on recent trips to the capital.
Finally, circumstances conspired; I was carrying only a small rucksack, and the showers of earlier in the day had cleared. I left a meeting in Broad Street in the City, and needed to get to Marylebone station for a train out to the west. Obtaining a bike was quick and easy, the credit card operated system was simple, though the machine did spit out a lengthy paper receipt first, before then issuing me with a separate piece of paper providing my dock release code.
The bicycle itself was a big, robust affair, but allowed me to raise the seat plenty high enough for my tall frame; and its three gears were just right for starting off and cruising along. What was surprising was how many other cyclists I was alongside, and how as I moved west across London, how many dedicated cycle lanes and marked roadways there were; and how I regularly kept up with the same vehicles through several junctions.
Compared to the underground, the ride was cheaper, probably healthier, and similarly quick/slow. The only problem, I realised when I arrived at my destination and docked my bicycle, was that in my enthusiasm for keeping up with the traffic, I had been pedalling rather hard, and I needed a shower and a fresh shirt!
One of my Twitter followers asked me this morning: “What’s all this #ff stuff about?”
So I explained – and thought I would pop the info here, in case anyone else was too scared to ask out loud.
#ff is short for Follow Friday. It’s rather like a Twitter version of inviting two mates who you think would hit it off, to the pub at the same time, so you can introduce them. Follow Friday was the brainwave of Micah Baldwin. His original Tweet explains the concept beautifully: “I am starting Follow Fridays. Every Friday, suggest a person to follow, and everyone follow him/her. Today it’s @fancyjeffrey and @w1redone.”
The idea went viral, and was soon creating a massive spike in Twitter activity.
So if you feel like it, why not start #ff yourself? Who amuses/impresses you – and you think your friends would like to follow?
More about hashtags in general here http://twitter.pbworks.com/w/page/1779812/Hashtags
I was passing the beautiful St Pancras station where, according to a feature in the Sunday Times, the Gothic building at the front has now been converted into a Renaissance brand hotel for the Marriott group. And the interiors are stunning.
Except – unless you’re a journalist – you won’t be allowed to see them just yet. The hotel is open, sort of, in that you can apparently book a hotel room. But the common areas are only open in as much those with reservations can book in at reception. I strode in, expecting to be able to review the bar area and the response from the somewhat scary security staff was: “Nyet.” As in the Russian for no – or equally, short for “not yet”.
My tip – if you want to take a look around, walk in carrying a suitcase.
So why take bookings for a hotel that’s not properly open yet? I’m guessing the builders are behind schedule – and a lawyer somewhere is rubbing his hands at the contest to come.