Hong Kong investor reveals plans for 1.2m sq ft City tower

A Hong Kong conglomerate founded by the late textiles magnate Lim Por-yen is preparing to submit plans for a new 1.2m sq ft City tower at 100 Leadenhall Street, EC3. Lai Sun Development, which invests in the UK via London-based developer London & Oriental, has revealed plans for a 56-storey, office-led development on the edge of the City’s tower cluster. Designed by architect Skidmore, Owings & Merrill –whose projects include the world’s tallest building, Dubai’s Burj Khalifa – the proposed tower will rise to 263m. The scheme will also include shops on the ground floor and will create new pedestrian routes between Leadenhall Street, Bury Street and St Mary Axe, as well as public spaces around the base.  Lai Sun acquired three buildings at 100, 106 and 107 Leadenhall Street during 2014 and 2015 for a total £188.5m to assemble the development site. Lai Sun subsequently commissioned L&O to consider the opportunity for the amalgamated site and seek planning consent for a new commercial development. The partners intend to submit a planning application for the tower in early 2018. All leases at the existing schemes expire in 2023. However, L&O hopes to bring those forward if possible so construction can start sooner, subject to securing a prelet for some of the space. Unique space The skyscraper, which will be formally known as 100 Leadenhall Street, is one of the last significant sites available for development in the City’s eastern cluster of tall buildings. The assembled development site is bordered by 30 St Mary Axe, EC3, and the Leadenhall Building, EC3. Its asymmetric design means that no floorplate will be identical. “The reason it tapers is because we wanted to be deferential to St Paul’s Cathedral,” says L&O partner Mark Cannell. “Although it’s not a verified view, there’s an important view from Fleet Street, and we wanted to make sure the impact on the St Paul’s sky gap was as minimal as possible.” The new office space is pitched as fulfilling London’s need to maintain its standing as a global financial centre. However, Cannell said the building is designed to be flexible so it can adapt to the changes in workplace trends prior to work being able to start on the scheme. “One of the attractions of the design is that we provide large trading floors at ground floor through to fifth floor, but the floors get smaller and smaller as you go to the top of the building and all of the upper floors and in fact the lower floors are subdivisible,” he said. “So we’re anticipating that first of all, there’s a lot of flexibility in terms of who might be interested in the building, but secondly, we’re going to ensure that the things that we provide within the building will be in line with what people want.” [gallery size="full" columns="2" type="slideshow" ids="896024,896025,896026"] It is understood Lai Sun is not currently looking for finance for the project. Cannell said the partners were “a long way” from making a decision about whether or not to source external funding. He said they couldn’t say yet whether or not Lai Sun would sell the tower once it was completed and fully let, but that they tend to be a long-term investor. Hong Kong investors have dominated the City investment market with deals including the £1.3bn Walkie Talkie, EC3, sale to Lee Kum Kee and £1.15bn Cheesegrater, EC3, sale to CC Land. However, Hong Kong investors have been less active on development opportunities. Cannell said: “We like to create trophy assets but we don’t invest in them. Like them [Lai Sun], we prefer to be developers, because when you are buying the end investment, the development profit has been taken out by somebody else.” A good time to build big? Since AXA IM-Real Assets and Lipton Rogers’ post-referendum decision last summer to kickstart the development at 22 Bishopsgate, EC2, without a prelet, other developers have gradually followed suit. Major schemes recently started speculatively include TH Real Estate’s 70 St Mary Axe, EC3, and Exemplar and Partners Group’s 80 Fenchurch Street, EC3. There is 13m sq ft of office space under construction in central London, of which 50% is prelet, according to CBRE. “In terms of the cycle, when it comes to vacancy and indeed pipeline we are nowhere near where we were in previous cycles; and we think supply is not quite at its peak but it’s not far off its peak,” said Kevin McCauley, CBRE head of London research. Central London saw 9.2m sq ft of take-up in Q1-Q3 this year, which is 8% higher than at the same stage in 2016. The largest deals of Q3, such as Deutsche Bank’s 550,000 sq ft letting at Landsec’s 21 Moorfields, EC2, have all been prelets, suggesting there is constrained supply. CBRE forecasts City rents to continue to fall moderately until 2020, but to remain above £60 per sq ft, before rising again in 2021 and 2022. Take-up could also be below trend for the next two years as a result of economic growth moderating. “That doesn’t mean there is going to be a huge drop, but it could be 5% or 10% below trend,” McCauley said. Cannell said: “The situation  at the moment is unusual in that rental values don’t seem to be increasing, but there is still a very limited supply of new accommodation and a lot of that has been taken up by prelets. I don’t see that situation changing any time soon.” He said he was cautious about the outcome of Brexit but confident about the future of London as a world financial centre. What is Lai Sun? Lai Sun Development is a member of Lai Sun Group, a Hong Kong-listed company with a focus on property development. Founded in 1947 as a garment manufacturer, it first listed on the Hong Kong Stock Exchange in 1972. The company, which was listed again in 1988 following the reorganisation of the group, now focuses on property investment and development, and hotel and restaurant investment. “They also have a lot of experience in retail, entertainment and leisure investments,” says Cannell. “And I’m hoping that some of their experience in Hong Kong, which allows for… mixed-used buildings at their very best in Hong Kong, we can bring some of that to London.” L&O and Lai Sun partnered on the comprehensive refurbishment of 36 Queen Street, EC4, which they bought in 2011 and still own. “That was a huge success,” says Cannell. “I think that did give Lai Sun the confidence to up the ante a little bit.” What is L&O? Founded in 1995 by Mark Cannell and David Royce, L&O has advised a stable of wealthy Hong Kong families on the acquisition, management, development and sale of office, industrial, residential and data-centre buildings in London and the UK. L&O’s current principal focus is in London, where it is building 111 Cannon Street, EC4, a 15,000 sq ft office and retail building, and Buckingham Green, SW1, a mixed-use development comprising 65 flats and 130,000 sq ft of office and retail space. To send feedback: e-mail Louisa.Clarence-Smith@egi.co.uk or tweet @LouisaClarence or @estatesgazette e-mail Paul.Wellman@egi.co.uk or tweet @paulwellman eg or @estatesgazette