London • For 30 years, an army of UBS Group AG traders packed the football-field-sized floors of a building in the City of London’s largest office project. Now teams of labourers in high-visibility jackets are busily transforming the property for a different type of worker.
Broadgate, a 32-acre (13ha) complex built to accommodate the banks and law firms that mushroomed out of London’s Big Bang deregulation in 1986, is at the centre of the city’s efforts to attract more technology companies as finance loses its sway after the Brexit vote. With Britain preparing to leave the world’s largest trading bloc, Broadgate’s landlords are planning an overhaul to open it up to the neighbouring Shoreditch district, a favourite for tech firms.
“Obviously after the summer there was a question about what were we going to do” about the development at 100 Liverpool Street, David Lockyer, head of Broadgate at British Land Co, said in an interview. “If we are entirely reliant on our traditional financial-services sector, we could be waiting for a long time” to fill the redeveloped building. British Land co-owns the campus with GIC Pte Ltd, Singapore’s sovereign-wealth fund, which declined to comment.
After a four-year boom in demand for office space before the June 2016 referendum, a wave of 1980s office buildings are now becoming vacant as companies including UBS move into shiny new London headquarters. The owners of these relics of a bygone financial era are attempting to rein- vent them to appeal to the industries they hope will be the engines of growth in post-Brexit Britain. The backdrop of political uncertainty and increasing office supply makes the task a daunting one.
The long-term outlook also gives rise to pessimism. London’s office market could lose a quarter of its value over the next decade as more people work remotely, according to Fitch Ratings.
Office vacancies in the UK capital climbed to 5.8% at the end of the first-quarter from 3.9% a year earlier, the biggest increase since 2009, according to data compiled by Deloitte LLP. The amount of empty City of London space will rise to 7.7% by 2019, according to CBRE Group Inc. So far, the best buildings rented for the longer term have held their value, while older properties have declined in price.
“We are observing a hint of risk aversion from a bunch of investors at the riskier end of the spectrum,” said Toby Courtauld, CEO of London
landlord Great Portland Estates plc. Companies including Royal Bank of Scotland Group plc, NEX Group plc and Ashurst LLP are giving up their Broadgate leases in the next couple of years, while Deutsche Bank AG plans to sublease most of its space on the estate.
That helped prompt British Land’s rethink. The proportion of space leased by the firm to banks has declined to 7% from 12% in March 2010, according to a presentation last month. It will fall by a further percentage point over the next year as the company seeks to “rebalance” its portfolio, CEO Chris Grigg said in a telephone interview.
One Finsbury Square, a property that used to be occupied by UBS, will be “tech focused”, with a communal roof terrace, retail space, restaurants and a cinema, according to Lockyer. “It’s probably the first opportunity for us to really create and deliver something different within Broadgate and attract a non-financial type,” he said.
Still, a plan to undertake a more extensive remodelling — that would have involved extending the building — has been dropped, in part because of the Brexit vote. British Land also wanted to make sure the property would be ready before 100 Liverpool Street, and would therefore not have to compete for the same tenants. At the same time, the company has decided not to proceed with the construction of a tower to replace two neighbouring buildings until it has found tenants, Lockyer said.
“Given the amount of other space we have to do, speculatively developing would have been brave,” he said.
With bankers on the way out, pop-up restaurants in repurposed shipping containers and £10 (RM55) lobster and crayfish rolls are on the way in, alongside bars selling bottles of Dom Perignon champagne for £220. British Land and GIC plan to double the number of stores and restaurants at the complex by 2019, with much more planned after that as part of the diversification.
For the first time, British Land is offering flexible work space, allowing tenants to sign shorter-term leases that are typically favoured by startups and small and medium enterprises because they are often unsure how much space they may need in the years to come.
“Brexit is definitely a negative for London offices” Hemant Kotak, an analyst at Green Street Advisors, said by phone. “But what British Land is doing at Broadgate in terms of diversifying the uses and tenants is very intelligent, and ultimately it could end up being healthier for London overall.” — Bloomberg