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The City of London is planning to fast-track applications to convert unused older offices for new purposes such as hotels to avoid buildings lying empty as “stranded assets”.
Office demand in the Square Mile, London’s central financial district, is projected to grow by up to 2mn sq ft in the next decade, according to research commissioned by the City of London Corporation, with fierce competition for the buildings with the best facilities and environmental credentials.
But older buildings that do not meet tightening environmental standards are likely to struggle to attract tenants, as companies switch to hybrid working. Their owners also face mounting debt costs as interest rates rise.
Shravan Joshi, chair of the City’s planning and transportation committee, said that around 80 per cent of the Square Mile’s offices are of “prime” quality. “It’s that 20 per cent that we have really got to manage, and make sure they don’t become stranded assets,” he said, in an interview with the Financial Times.
Many older offices require substantial investment in upgrades to meet higher energy efficiency standards being phased in by the government by 2030. Some owners and investors are reluctant to commit the cash, given financial pressures and uncertain demand.
Joshi said he wants a quicker process for approving plans to modify unused office buildings for other uses. Changes could include reducing the amount of evidence required to justify a switch.
He said the planning committee was “sympathetic” to new uses that are complementary to the City’s identity as a business centre, including hotels, as well as “educational and cultural uses”, such as galleries, universities and research space.
“There will be some savings in time and costs for developers,” he said.
Since the pandemic, the City has worked to increase tourism and leisure visits to the Square Mile. While public transport journeys into the area are 75 per cent of pre-pandemic levels even on peak office days during the week, they are 120 per cent of the pre-Covid norm at weekends, according to TfL data analysed by the City.
However, the corporation has stopped short of encouraging more residential buildings. Joshi did not rule out converting office buildings into flats, but said he was nervous of having more housing within the business district. More residents would mean extra constraints on noise and light when planning high rise developments to meet the demand for modern office space, he added.
Competition for the highest quality modern space is intense. Companies struck six deals to lease City offices for rents over £100 per sq ft in the year to March, according to real estate adviser CBRE, compared to only three deals above that rent before 2022. More than a third of all central London office leases in the last year were for what CBRE called “super prime” space with the best amenities and environmental standards.
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