Can London’s insatiable appetite for tall buildings continue? Binyamin Ali examines the ownership of the capital’s towers and why developers see such value in the skyscraper.
“If you are in London, you have to go up. You can’t go horizontal[ly] because there is no room,” says WSP managing director for building and property Kamran Moazami.
“Even when you look at the science-fiction movies, you see everything going up.”
We’re discussing London’s insatiable appetite for tall buildings and the competing factors that have led to a bloated pipeline of 510 tall buildings in the capital, according to the London Tall Buildings Survey 2018.
As far as Mr Moazami is concerned, the reason for the pipeline is simple: housing shortage plus a growing urban population and a shortage of land results in tall buildings.
It’s a simple way of illustrating the various factors that are encouraging developers to look to the skies for their next development, but this only encapsulates part of the story.
The need for more residential property has certainly influenced the 94 per cent rise in the tall building pipeline since 2015, but what about the range of skyscrapers in the heart of London? And who is funding these developments and is the tall buildings trend sustainable?
When examining where the money is coming from for current and future projects, it’s worth looking at who owns London’s existing skyline (see box, below).
Four of the five tallest buildings in London (the Shard, One Canada Square, 122 Leadenhall Street and 8 Canada Square), are all owned by Qatari and Chinese companies.
Meanwhile, 20 Fenchurch Street – or the Walkie Talkie – was sold to Hong Kong food conglomerate Lee Kum Kee for a record-breaking £1.3bn in 2017, and 30 St Mary Axe – the Gherkin – was acquired by Brazilian billionaire Joseph Safra for more than £700m in 2014.
And with regards to current tall building developments – despite the economic uncertainty created by Brexit – international investors are continuing to pour into the capital.
“If you are in London, you have to go up. You can’t go horizontal[ly] because there is no room”
Kamran Moazami, WSP
According to research by global real estate consultants Knight Frank, the first half of 2018 saw £6.89bn invested in London real estate, making the capital “the most liquid real estate market in the world”.
The majority of this investment – £5.66bn of it – came from international investors.
“You tend to get an assured return, even if it is not a high return, you will still get an asset or a return in the long run,” says Invennt consultant Sree Vinayak.
“No one would argue with the fact that if you own an asset in London, you get more than the financial return. You also get a lot of social return in terms of soft power because you have invested in a leading building in London.”
Invennt is a consultancy that helps construction businesses find ways of getting more value from their investments.
An assured financial return is no doubt a tempting prospect for real estate investors, as well as pension and insurance schemes who are serial investors in the city.
Mace Can of Ham 2
The Can of Ham (70 St Mary Axe– pictured above), for example, was developed and funded by TH Real Estate.
Founded in 2014, TH Real Estate was created by US fund TIAA-CREF (Teachers Insurance and Annuity Association-College Retirement Equities Fund) and Henderson Global investors in a 60-40 joint venture.
The company was created with a view to offering clients wider investment opportunities, while “helping to accelerate the growth of each firm’s real estate business”.
TIAA-CREF acquired Henderson’s 40 per cent stake in the JV in April 2015 and later that year, in August, TH Real Estate brokered a new JV between TIAA-CREF and Swedish national pension funds AP1 and AP2.
The new “pan-European office-investment platform” was established and is managed by TH Real Estate.
The developments with this single company show how quickly ownership of real estate investment vehicles can change hands but more importantly, it demonstrates the continued eagerness of funds to invest in London’s skyline.
Value outside the City
The construction of tall buildings is by no means limited to the skyscrapers taking shape in the City of London.
When the City’s pipeline (15) is compared with those of other boroughs, it falls some way down the pecking list.
Tower Hamlets has the biggest tall building pipeline with 85 in either pre-panning, planning, permission granted or construction stage, with Greenwich (77) and Southwark (48) the second and third-biggest pipelines.
Indeed, 252 of the 510 tall buildings in the pipeline across the capital are in east London, with only 99 of them in central London boroughs.
eric parry 1 undershaft 2
Source: Eric Parry Architects
What’s more, 458 buildings in the pipeline are residential towers, with only 30 of them for commercial use and 11 for student accommodation, with the remaining 11 split between hotels and co-living.
“The main issue we have is cost. People don’t have good housing that they can buy,” Mr Moazami says. “The problem that has developed is whatever is built is expensive, not many people can afford it.”
Mr Moazami says WSP is currently working on “at least 20” tall building developments, adding that the firm is seeing more and more “fantastic proposals” outside of central London, where housing is more affordable.
As well as the increased demand and surety of return that comes with affordable developments, Mr Moazami says consultancy and engineering fees also make tall buildings commercially competitive.
“The cost goes down because [when] you do tall building, because of the repetition [from floor to floor], a percentage of the fee is lower. You charge less as a percentage of a square metre,” he says.
“With low-rise buildings, because you have to do so many pieces in the building, your cost is higher. There is economy in doing tall buildings even as far as engineering is concerned.”
While engineering and consultancy costs can be reduced depending on the design of the build, the wholesale use of modular construction is another factor than can offer cost savings.
“The cost goes down [when] you do tall building. Because of the repetition [from floor to floor], a percentage of the fee is lower. You charge less as a percentage of a square metre”
Kamran Moazami, WSP
One notable development seeking to take advantage of this is 101 George Street in Croydon, south west London, which is backed by Greystar Real Estate (a global rental housing firm) and Henderson Park (a European real estate investment platform).
Built entirely using modular construction, 101 George Street is a 38-storey and 44-storey development which, when complete, will feature the two tallest modular buildings in the world.
However, unlike many residential tall buildings going up in London, the development is being built and has been designed specifically for rent, targeting the city’s burgeoning build-to-rent sector.
It is one of the first purpose-built build-to-rent flats to use modular construction in the city, but the attraction for investors is plain to see.
“Modular construction creates huge value for investors as it means apartments can be rented out much earlier, than if they were built using conventional methods,” HTA said in a statement, the designer behind the project.
Who gets the work?
If the use of modular construction becomes the preferred choice of developers and investors in the build-to-rent sector, this area of the market could well be cornered by those who have the best modular offering.
Developments in the heart of the city that dictate the shape of the skyline, however, are likely to be won by those who use a combination of traditional and offsite methods of construction, but are also capable of adding dynamic elements to the project.
“If you look at the range and diversity of tall buildings going up in the city, the differences are subtle,” says Arup associate director James Ward.
“They’re not necessarily about who’s made the tallest building. They’re often about activation at low levels, they’re about the combination of uses such as retail and amenity.”
101 george street
As well as being the result of client demands, the competing opinions around the type of city London should be, and the City of London’s desire to satisfy those opposing ideas, is another contributory factor.
But this is not necessarily a detrimental place for London to be, says Arup director, group leader Mike Beaven.
“The different points of view of what London should be can create a dynamic city that has different experiences and difference places, rather than being one or the other,” Mr Beaven says.
“It can aspire to satisfy the needs of a world city while maintaining that unique character. I think London is seeking to be dynamic and responsive.”
And as the numbers in the London Tall Buildings Survey 2018 show, 90 per cent of the tall building pipeline beyond the City’s skyscrapers are residential developments. Who’s going to get this work?
WSP has a pretty good idea about what they need to do to secure a share of the pipeline, Mr Moazami says.
“Our reasoning is if you can come up with accommodation that is easy to build and more economic to build, there is a demand for it – so that is actually what we’re doing now,” he says.
“We’re looking at different types of accommodation for lower income and affordable locations.”
Is the trend sustainable?
As far as tall buildings as a sustainable trend is concerned, the data suggests that even if the pipeline does not continue to grow year-on-year, there will be a healthy amount of work on offer because it has ballooned so much over the last five years.
Between 2014-15, the pipeline grew by 11 per cent to 263 tall buildings; between 2015-16, it jumped markedly by 65 per cent to 436; between 2016-17, there was a 4 per cent increase to 455; and in 2017-18, the pipeline grew by a further 12 per cent to 510.
While this has raised serious questions as to whether an industry already stretched for skilled tradespeople can deal with the demand, the appetite for tall buildings remains strong because of the value they represent to developers.
“History [shows] that buildings don’t get shorter. I don’t know any place in the world where buildings are getting shorter”
Mike Beaven, Arup
“When you put the cost, versus selling price or renting price, the equation works. I never thought we would do a 60-storey student accommodation, but we are,” Mr Moazami says.
“In general, people will say how could a 50-storey accommodation in Manchester be viable? But if you design it right, you have the right people working on it and if you know what the cost is and what you want to achieve, it is doable.”
He adds that his 40 years designing tall buildings have led him to conclude that “designing tall buildings is less risky if you design it right, because of its nature of being repetitive. You do the same thing 30 or 40 times.”
What’s more, growing urban populations and a limited land mass invariably means there is nowhere to go but up.
“History [shows] that buildings don’t get shorter,” Mr Beaven says. “I don’t know any place in the world where buildings are getting shorter.”
Who owns London’s skyline?
Source: Jason Hawkes
- Owner: The Qatar Investment Authority owns 95 per cent of Europe’s tallest building
- Height: 309 m
CREDIT Jason Hawkes_Canary Wharf
Source: Jason Hawkes
- Owner: The Qatar Investment Authority, along with joint bidder Brookfield, became the majority shareholders of Songbird Estates in February 2015. Songbird owned Canary Wharf and its three iconic buildings, One Canada Square, 8 Canada Square and 25 Canada Square. Qatar and Brookfield completed the acquisition of subsidiary Canary Wharf Group in April 2015.
- Height: One Canada Square: 235 m; 8 Canada Square: 200 m; 25 Canada Square: 200 m
- Owner: Heron International – the only building among the five tallest in London owned by a British property development company
- Height: 230 m
Leadenhall Building Cheesegrater
122 Leadenhall Street – The Cheesegrater
- Owner: CC Land Holdings, a Hong Kong-based firm controlled by Chinese property tycoon Cheung Chung-kui, purchased the Cheesegrater in March 2017 for £1.15bn.
- Height: 225 m
Skanska_30 St Mary Axe Gherkin_Heron tower
30 St Mary Axe – The Gherkin
- Owner: Safra Group, the Brazilian banking group controlled by billionaire Joseph Safra completed the purchase of the Gherkin in December 2014, in a deal worth more than £700 m.
- Height: 180 m
Brogan Group scaffolding Walkie Talkie 3
20 Fenchurch Street – The Walkie-Talkie
- Owner: The property arm of Hong Kong food and health products company Lee Kum Kee acquired the Walkie-Talkie in a record-breaking £1.3bn deal in July 2017.
- Height: 160 m