Property developers are pushing ahead with plans to build two new towers in the City of London, betting businesses will pay for modern, eco-friendly offices despite occupancy levels in the historic financial district which remain well below pre-pandemic levels.
Topland Group, the private family office of billionaire brothers Sol and Eddie Zakay, and Axa IM Alts, a division of the French fund group Axa Investment Managers, are continuing their major developments in the Square Mile.
Axa bought 50 Fenchurch Street under a 250-year lease from the Clothworkers’ Company, a city livery company founded almost 500 years ago. The French group, which already has the largest office in the city, 22 Bishopsgate, is boosting its exposure to the region with a plan to build a new skyscraper on the £1billion plot of Fenchurch Street.
The tower, which will span 36 floors and is scheduled for completion in 2028, will be among the tallest in the city.
Topland, meanwhile, has pledged to build a £165million block near Farringdon station at 150 Aldersgate Street, due for completion in 2024.
Both developments are speculative, meaning no tenants have been signed yet, and will collectively add over 800,000 square feet of office space – the equivalent of more than 10 full-size football pitches – to the market. Londoner.
Axa and Topland are confident in the demand for low-carbon buildings and modern facilities, even as hybrid working becomes more entrenched following the pandemic.
According to real estate agent Savills, the number of deals signed for new office space is increasing, after collapsing almost entirely at the start of the pandemic. In the city, about 90% of all new leases signed in the past year were for premium, or “Grade A” space.
Isabelle Scemama, global head of Axa IM Alts, expects “this flight to quality to become even more acute over the next few years as companies adapt to new ways of working”.
The City, she added, remains “one of the most desirable office locations in the world”.
But even with the worst threat of the coronavirus having receded, the number of workers heading to city offices remains well below pre-pandemic levels, raising fears that further developments may prove unnecessary.
Office occupancy in the City of London hit 24% in March, its highest level since lockdowns began in 2020, and hasn’t risen significantly since, according to data from Remit Consulting. Before the pandemic, the average office occupancy in the UK was around 60%, according to the British Council for Offices.
Workers are also returning to the city more slowly than to the West End and Canary Wharf, according to Remit, a trend that has prompted some investors to pull out of developments in the area.
Sol Zakay, chairman and chief executive of Topland, dismissed the fears.
“We believe there has been an overreaction to the changing dynamics of the city office market now that hybrid working is here to stay. This, coupled with the prevailing economic headwinds, has seen some developers turn cold,” he said, adding that he was very confident in securing tenants.