Why Castleforge still sees opportunity in offices

The team behind the £1.2bn redevelopment of Deutsche Bank’s former UK headquarters is hoping to deliver a sizeable scheme into a supply-starved London office market. Work is finally underway at 75 London Wall, EC3, almost two years after developer Castleforge and Malaysia’s Gamuda Berhad sealed their £257m deal to buy the building from China Investment Corporation and Invesco Real Estate. The joint venture broke ground on the development last week. Speaking at the event, Gus Wiseman, global head of investor relations at the Department for Business and Trade, praised the project’s “London story”. He described it as an opportunity to “create something truly special” and demonstrate the city’s “international dynamism” by bringing Malaysian capital together with Castleforge, a UK company founded by American partner Michael Kovacs. Good bones Howard Dawber, London’s deputy mayor for business and former managing director for strategy for Canary Wharf Group, used his own speech at the event to highlight the kinds of assets that the capital can offer to investors, what he described as “buildings with very good bones, which are now entering a second life and meeting their environmental commitments”. Castleforge and Gamuda bought 75m London Wall, once known as Winchester House, with the help of a £150m loan from alternative investment manager Cheyne Capital. Ravi Stickney, managing partner and chief investment officer of Cheyne Real Estate, said Gamuda’s involvement marked a “significant vote of confidence” in London. Thanks to a further £500m loan from Cheyne revealed at the ground breaking event, the building’s redevelopment is gathering momentum as the partners look to deliver 450,000 sq ft of office space in the heart of the City for 2027. Drawn to the capital Dato’ Lin Yun Ling, managing director at Gamuda Group, said: “Our acquisition of this building in 2023 stemmed from the ‘flight to quality’ to top-grade office spaces in the real estate market. Multinational corporations are drawn to London, the epicentre of Britain’s economy and home to a huge proportion of its primary export – global services.” He added: “This has driven a surge in demand for premium offices, linking quality workplaces to higher productivity. With a limited supply of best-in-class ESG spaces, rental growth remains strong, making 75 London Wall a standout investment.” As the majority partner, with a 75% stake in the project, Gamuda is putting its confidence in the UK office market, which forms a large chunk of the total gross development value of £1.4bn it has invested in the UK since 2022. But after the event, when asked about his views on Keir Starmer’s Labour government, Dato’ said not all is rosy. He said: “Some things have improved; some things have got worse.” As an example, he pointed to tax rises announced in the Autumn Budget, which he described as “unhelpful”. For now, he added, the company’s strategy in the UK will likely be in its two existing asset classes: offices and living. Rediscovering the potential Kovacs, on the other hand, expressed confidence in the current state of affairs. “We are extremely excited about investing in the London market, for all the reasons that everybody talked about,” he said. “How international it is, how much inward investment there is and how much opportunity there is for office space.” In a research note late last year, Kovacs and colleagues said investors are “creeping back into the market” and picking up prime offices, pointing to ambitious expansion plans from GPE and Grosvenor. The Castleforge team said: “The recovery in office has been slow, but we are starting to see evidence that some investors are (re)discovering the potential of the sector’s best assets to deliver string rental and capital growth over the next few years. If current trends regarding interest rates and occupier demand for best-in-class continue to grow, we expect the market to heat up significantly, and for institutional investors to get the message soon.” Photo © Kevin Lines Photography