Property developers bet on City of London’s appeal with new towers

Property developers are pushing ahead with plans to build a pair of new towers in the City of London, betting that companies will pay for modern, environmentally friendly offices despite levels of occupancy in the historic financial district remaining far below pre-pandemic levels.

Topland Group, the private family office of billionaire brothers Sol and Eddie Zakay, and Axa IM Alts, a division of French fund group Axa Investment Managers, are pressing on with large developments in the Square Mile.

Axa has bought 50 Fenchurch Street on a 250-year lease from the Clothworkers’ Company, a City livery company founded almost 500 years ago. The French group, which already owns the largest office in the City, 22 Bishopsgate, is scaling up its exposure to the area with a plan to build a new skyscraper on the £1bn Fenchurch Street plot.

The tower, which will stretch to 36 storeys and is scheduled for completion in 2028, will be among the biggest in the City.

Topland, meanwhile, has committed to build a £165mn block close to Farringdon station, at 150 Aldersgate Street, which is scheduled for completion in 2024.

Both developments are speculative, meaning that no tenants have yet been signed up, and will collectively add more than 800,000 square feet of office space — equivalent to more than 10 full-size football pitches — to the London market.

Axa and Topland are confident in the demand for buildings with low carbon emissions and modern facilities even if hybrid working becomes more entrenched following the pandemic.

According to estate agent Savills, the number of deals being signed for new office space is rising, having almost collapsed entirely at the start of the pandemic. In the City, about 90 per cent of all new leases signed in the past year have been for the best quality, or “grade A”, space.

Isabelle Scemama, global head of Axa IM Alts, expected “this flight to quality to become even more acute over the coming years as businesses adapt to new working patterns”.

The City, she added, remained “one of the most desirable office locations in the world”.

But even with the worst threat from coronavirus having receded, the number of workers heading to City offices remains far below pre-pandemic levels, raising concerns that new developments may prove unnecessary.

Office occupancy in the City of London hit 24 per cent in March, its highest level since the start of the lockdowns in 2020, and has not increased meaningfully since, according to data from Remit Consulting. Before the pandemic, average office occupancy in the UK was about 60 per cent, according to the British Council for Offices.

Line chart of average office occupancy per month (%) showing the return to the City of London has lagged other areas

Workers are also returning more slowly to the City than to the West End and Canary Wharf, according to Remit, a trend that has prompted some investors to pull back from developments in the district.

Sol Zakay, chair and chief executive of Topland, dismissed the fears.

“We believe there has been an overreaction to the shifting dynamics of the City’s office market now that hybrid working is here to stay. This, coupled with the prevailing economic headwinds, has seen some developers get cold feet,” he said, adding that he was very confident of securing tenants.

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