Blurring the lines between City and fringe offices

Is Deliveroo, the app-to-lap fast food service, a typical City of London occupier? Deliveroo has grown fast. Four years old and with turnover that might – or might not – be around £130m, Deliveroo is the kind of buccaneering entrepreneur the City of London has always loved. The difference is that today they occupy City offices themselves – storming into 50,000 sq ft at Blackstone’s River Building, EC4 – rather than simply visiting to talk to their City-based advisers. The deal comes at a time when the business demography of the City and its fringe have never looked so similar. Meanwhile the price gap between City and fringe – once so marked – has all but vanished at the top end of the market, where good new floorspace will cost £70 per sq ft whether it is in the City or its fringe. In some searches, the City even comes out cheaper than the fringe. So blurred and porous are the boundaries between the City and its fringes that sensible people now wonder if it’s worth making any distinction between them. And if that’s the case, what next for the City? The best way to find an answer is by talking to City occupiers. Architect Gensler signed a 15-year lease to occupy 30,000 sq ft at Resolution Property’s 560,000 sq ft Moretown campus, once known as Wapping’s Thomas More Square. Extensive refurbishment work at Moretown started in January and will complete in spring 2018. Regional managing principal Duncan Swinhoe says: “We moved from Moorgate to Aldgate when Aldgate was fringe. Now we’ve outgrown it and moved on to Wapping. When we came over to the UK in the 1980s it was all about the Square Mile, and even 10 years ago postcode sensitivity was much stronger, but today all of Zone 1 [London Transport’s central London zone] is much the same, so we looked at the kind of building we wanted, maybe something older or overlooked that we could use to make a statement, and that we could afford.” Moretown won out against a shortlist including the City, Southwark, Clerkenwell, Stratford and Dalston. “We like the broader range of amenities in the city fringe which has better hotels, better retail, and has gone a long way further in mixing living, working and playing.” Adam Goldin, head of Resolution Property’s London projects, agrees that it’s the building, not the address, that matters. [caption id="attachment_805087" align="alignright" width="200"] AlphaBeta building, EC2[/caption] “It’s about good design creating a nice place to live, work and party – that is what matters whether the building is in Soho or Shoreditch [where Resolution developed the 220,000 sq ft Alphabeta building]. It’s about pleasing staff in their mid-20s to mid-40s who treat work as an extension of their social life. That is more important than the postcode.” Blackstone has transformed St Katharine Docks into a tech-attracting community – WeWork announced they would take 55,800 sq ft late last year. No surprise then, that Blackstone director Ed Hodgson agrees with Goldin, but he adds that it is precisely the quality of the City’s buildings that cause it to lose out to the fringe. He raises the frightening prospect that the City/fringe distinction remains real – and that it’s the City that has the problem. Hodgson says: “The market is lead by the quality of the office stock. It’s about creating the right environment. Interesting buildings get higher values, but the City’s buildings are not yet able to evolve into the kinds of properties that can capture this market. They could – it’s not impossible. Even with glass and steel buildings, there are things you can do with the right design to turn a building that’s 20 years old into something as fascinating as one that’s 100 years old.”   [caption id="attachment_874226" align="alignright" width="200"] 9 Appold Street, EC2[/caption] Blackstone’s 40,000 sq ft 9 Appold Street, Broadgate, EC2, could be an exemplar, says Hodgson. The refocused and rebranded building will be ready this month. “The play here is volume space, but it will be different for each 20- to 30-year old building,” he says. Does this spell a bleak future for the City, its office market dragged down by unappealing 1970s, 1980s and 1990s corporate office blocks? Or does it instead represent an opportunity to rethink that floorspace and give them (and their environment) the funky live-work-shop-socialise feel that works so well in the fringe? Chris Vydra, head of leasing at CBRE, agrees that while the City/fringe distinction has broken down but not quite vanished, he has confidence the City is again re-inventing itself. “It’s true that with the exception of smaller banks, most lawyers and insurance companies, London occupiers and especially those from the tech industries can locate pretty much anywhere. London now has multiple central business districts, and rents in City and surrounding areas have never been so similar. The pricing advantage that pulled occupiers to the fringe has gone – and the pull factors now are amenity provision and offices with character.” [caption id="attachment_790274" align="alignright" width="200"] 27 Poultry Lane, EC2[/caption] But Vydra says the City is fighting back on amenity. “We’re seeing a huge influx in the core of retailers, restaurants, bars and clubs like Soho House’s The Ned at 27 Poultry – and that mood will filter out into the quieter streets.” It is a strange, but nonetheless real, sign of how much the City is losing its dead-after-dark reputation that there are demands to review the license of The Madison, a bar overlooking St Paul’s Cathedral. The bar has been the scene of 21 violent incidents in 16 months – proof, if you wanted it, that the City is just like anywhere in central London. “My guess is that occupiers now look at the City and think it is strangely cheap. The arrival of Bloomberg [who move this year into 500,000 sq ft at 3 Queen Victoria Street, EC4] and the Financial Times [who will take 180,000 sq ft at Bracken House, Cannon Street, EC4] are responding to the radical transformation of the perceived image of amenity provision in the City, ” says Vydra. [caption id="attachment_792583" align="alignright" width="200"] Aldgate Tower, E1[/caption] Getting some occupiers to rethink the City/fringe distinction will always be hard, and maybe impossible. Dan Bayley, head of central London agency at BNP Paribas Real Estate, says insurance companies were happy to view 300,000 sq ft Aldgate Tower, E1, but nothing came of it. “We had lots of viewings with insurance companies, and they all nod and smile, but in the end all chose the duller, safer buildings of Fenchurch Street. They are not quite ready for novelty,” he says. The City and its fringe have had a long and turbulent history of exchange. Throughout most of London’s 2000-year history the fringe has been the place you escape to for fun – whether it was Roman baths, Shakespearean theatres, or 18th-century brothels. The pattern holds true today, with many occupiers preferring the cool fringe to the sober city. The City’s task now, say close observers, is to turn history on its head.