The City of London
A changing Mixed-Use Destination… but for how long?
Chris Room City Investment & Development
The world of offices has gone through a transformation and no other location globally can exemplify this change better than the City of London.
The City of London
A changing Mixed-Use Destination… but for how long?
Chris Room City Investment & Development
The world of offices has gone through a transformation and no other location globally can exemplify this change better than the City of London.
Occupiers expect so much more from a building than they did five years ago, driven by ESG credentials, efficiency and working environment. Long gone are the days it seems where occupiers would seek a compromise on price for a lower quality product.
Not all buildings and not all Landlords have the capabilities of delivering this quality of space and fortunately this has been recognised by the City of London Corporation sooner rather than later. Coupled with the City’s desire to create a 24/7 destination enhancing ground floor retail, utilisation of rooftop spaces and promoting mixed-use spaces, changes have been implemented within local planning policy to assist landlords who are struggling to repurpose their older office space and support the City’s long term strategy by allowing a streamlined approval process for granting change of use from B1 offices (now commercial ‘E’) to C1 Hotel and Serviced Apartments.
Occupiers expect so much more from a building than they did five years ago, driven by ESG credentials, efficiency and working environment.
It is unusual for the City of London to do this. Traditionally they have been very protective of their offices especially as available space to build upwards, particularly within the tower cluster becomes increasingly constrained. However, they have adapted and investors and developers are capitalising on this.
That’s not to say that the City of London will become a housing estate. The City Corporation are being selective and in the more traditional core the most leverage they are likely to give will be a change of use to C1 only which covers hotel or serviced apartments (short term lettings no longer than 90 days) rather than permanent residential which is still limited to a number of small pockets and streets.
‘Allsop’s sale of St Mary Abchurch House on Cannon Street generated significant inquires and interest as well as a competitive bidding situation’.
Allsop City Investment and Development team's first exposure to the investor demand within this sector came just over 12 months ago when they were instructed to sell St Mary Abchurch House on Cannon Street, EC4 for GMS Estates. This c. 13,000 sq ft freehold building had been granted a rare planning consent for a change of use of the 1st to 5th floors into 20 serviced apartments. 65 inspections and 15 first round offers later, all ahead of the quoting price of £6,000,000, with no offers from office buyers, it became clear that investor appetite within this use class far surpasses that of offices.
Since this sale the City has witnessed about eight further office to hotel/serviced apartments or ‘living’ sector purchases. To put this in perspective this accounts for 35% of the purchases over £20m in the City since Q2 2023.
Interestingly, some of the more dynamic investors are exploring acquiring smaller office buildings and then obtaining a C1 consent or as a minimum, a pre-app with the local council then looking to sell on for a premium. Allsop’s research suggests that the values for C1 use are generally 20-30% higher than that of what an investor would be prepared to pay for a straight up office conversion.
Similarly Landlords who own buildings that they are struggling to sell as offices are working up feasibility studies to show how a hotel or serviced apartment scheme would work within the floorplate. Interestingly not all buildings work on this basis and consideration must be given to floorplate depth, number of windows and gross:net efficiencies. It is clear that the City is going through a mini-boom in the office to C1 conversion space. But how sustainable is this? When tourists come to London would their preference be to stay in the City? Surely they would rather be immersed within the shops and tourist attractions of the West End? Hotel demand within this location is not unlimited and whilst the City Corporation is actively pushing forward with long awaited projects such as the Museum of London and Museum of Shakespeare in Shoreditch, the tap will eventually turn off as it always does.
Equally how long will the City Corporation be open to this change of use policy? Once so many consents have been granted surely they too will revert back to their original stance or protecting office space. And so they should. The new build vacancy rate in the city is sub 2% meaning occupier demand is there if the high quality space is developed. As inflation gets under control and build costs start to become more affordable then we can see the window of opportunity for investors to capitalise on the relaxation of planning policy within the City to close just as quickly as it opened up.
Allsop’s research suggests that the values for C1 use are generally 20-30% higher than that of what an investor would be prepared to pay for a straight up office conversion
The City of London is currently one of the most interesting and diverse sub-markets for investors looking to capitalise on reduced values and is benefiting from the most flexible planning policy for change of use away from office space the Borough has seen in the last decade. Mixed use developers should embrace this whilst the planning window remains open.
