Lessons in leasing: Aldgate office owner tries conversion again

The owner of an Aldgate office block is trying for a second time to change the building’s use to include higher education, having struggled for years to fill it as a traditional workplace. CLS Holdings, a listed real estate investor, bought 9 Prescot Street, E1, from Derwent London and LaSalle for £53.8m in 2019. Now known as Artesian, the building has undergone a £30m refurbishment but retains many of its Art Deco features. It has 91,000 sq ft of office space across eight floors, priced at £47.50 per sq ft. The problem? No one wants to take the space. Or rather, some do, but can’t unless the site is approved for educational use – over the past year at least six universities have looked at the space but walked away. CLS applied to change its use to a hybrid of office and higher education in May 2023. That application was rejected in October on the grounds of loss of office space. Now it has applied again, doubling down on its argument that the building cannot attract tenants as a pure office. Cushman & Wakefield has been marketing the building since March 2020, with Compton joining the leasing line-up in January 2022. A marketing report from Cushman lodged along with the change-of-use application illustrates just how difficult the process has been – and why the agencies and owner alike believe pitching the building to educational occupiers would bring a change in fortune. In the letter, Cushman partner James Campbell stated bluntly: “If Artesian benefited from an educational use, the building would be occupied by now.” Instead, the leasing team has gone through multiple brochures, offered space on a whole, multi-floor or single-floor basis and pitched flexible deal structures. During preletting leasing Cushman secured just two presentations to what Campbell calls “traditional occupiers”: law firm Holman Fenwick Willan, which then opted for 8 Bishopsgate, EC3, and accountancy firm Mazars, which chose instead to sublet space at 30 Old Bailey, EC4, from Mizuho Bank. But educational occupiers are a bright spot in the market, the Cushman partner said. As media and technology tenants have moved out, some 60% of take-up in Aldgate and Whitechapel between January and November 2023 was from universities, most of this at 1 Portsoken Street, E1.  Campbell said there were at least 10 active requirements in the market from universities, excluding those that have already viewed the Artesian. “Of the educational users we have approached to date, the key reasons for discounting 9 Prescot Street have been timing and/or the risk of obtaining change of use,” Campbell wrote. “Obtaining dual office/educational use speculatively would put 9 Prescot Street ahead of other competing schemes in central London as applying for change of use following the agreement of terms represents one of the key risks for educational users acquiring office space.” Aldgate and Whitechapel already has the highest office vacancy rate in London outside of Canary Wharf, at 16.2%, said Campbell, adding that this is due to “location rather than quality of product”. Even best-in-class buildings are posting leasing voids of up to 55 months, Campbell said, pointing to Cushman’s efforts to fill GPE’s Hickman at 2 Whitechapel Road, a 76,000 sq ft building finished in late 2020 and with an “unquestionable” quality. The agency averaged one viewing a month in 2022 and 2023, he said, compared with four to eight in comparable grade-A stock in prime sub-markets. The Hickman was finally filled after GPE took a “highly flexible leasing strategy”, Campbell said, with “split floors lettings, soft rent and rent-free packages, [and] speculative landlord fit-out to mitigate void”. Image from EG