Why AXA’s backing of 22 Bishopsgate is backing for Brexit Britain

10th November 2016

The post-referendum world looks a little rosier following a decision to press ahead with the tallest tower in the City of London, says Richard Waite.

The decision by French investment manager AXA and its overseas pension fund-backed sidekicks to press go on PLP’s 22 Bishopsgate Tower in the City of London is significant.

The signing of final construction contracts at the end of last month means the long-awaited and much-written-about development of the site will finally happen.

At a time when Brexit uncertainty remains undiminished, some have even described the commitment of hundreds of millions of pounds to build the speculative 62-storey office block as ‘iconic’.

And here’s why. When the £500 million scheme eventually completes in 2019, the 120,000m2 building will be the tallest in the Square Mile, and only 30m short of the 309m Shard across the Thames. 

The saga surrounding the plot began more than a decade ago in 2005, when KPF revealed plans for a spiralling tower. Officially called the Pinnacle but better known as the Helter Skelter, the scheme became a victim of the recession and ended its life in 2011 as a seven-storey concrete stump after its contractor Brookfield Multiplex was forced to abandon work. 

Four years later the site was snapped up by a consortium led by AXA Real Estate working alongside development partner Lipton Rogers. They drafted in architect PLP – an offshoot of KPF and the new home for many of the original Pinnacle design team – to redraw the proposals.

The team successfully negotiated planning and a rights-to-light dispute. But then the nation voted to leave the European Union and nerves began to jangle.

AXA pressed pause and in late summer asked its trio of overseas co-investors – Singapore’s Temasek Holdings, Canada’s Public Sector Pension Investment Board and British Columbia Investment Management Corp – what they wanted to do.

Could this highly visible symbol of the state of the City’s office market become Brexit’s biggest victim?

The development world held its breath. Overseas purchasers account for 86 per cent of all property sales by value in the Square Mile – indeed every building sold for more than £25 million in the City last year was to a foreign investor – and there were fears that a U-turn by this quartet of overseas funders would spread like a contagion. 

So Lee Polisano of PLP is right when he says that AXA has made a ‘significant call’.

‘[The AXA Consortium] has taken a leap of faith,’ he says ‘One based on a belief that London will still be London.’

Polisano, who says that a number of his schemes were delayed in the wake of the vote but that most have now restarted, adds: ‘The overseas investment in London drives the real-estate market. If people lose confidence outside of the UK then the industry would suffer tremendously.’

John Robertson Architects had its own boost in the summer when US bank Wells Fargo snapped up its proposed 33 Central project for its new UK HQ. Director John Robertson sums up the feelings of many external observers when he says: ‘In many ways 22 Bishopsgate is seen as a bellwether for the post-referendum City property market.’

‘What we need now is positive encouragement and reassurance from the government that they will get on with the job of calming City fears about Brexit and protect banks’ valuable passporting rights.’

The fate of London and its ability to compete as a global financial centre after splitting from the EU continues to concern those in the big league property circles. 

But New London Architecture chair Peter Murray believes the 22 Bishopsgate commitment should allay many of those fears.

‘AXA’s decision is iconic in more ways than one,’ he says. ‘This is an important design for the City of London and sends a strong message to the financial services community about the Square Mile’s resilience. While some firms will inevitably move staff to Europe, the fundamentals that attracted banks and insurers here in the first place remain: language, time zone, legal system and quality of staff and support. 

‘Golden collar workers who can choose where they work in the world will still see London as a good place to be. We may lose our top slot as global financial capital to New York but the City will remain a key sector in the UK economy.’

Intriguingly it may not be the bankers who will determine the future of the City as a base for headquarters and top-end offices.

According to estate agent Knight Frank it is the tech businesses, as tenants of major commercial space, that may hold the golden key.

Knight Frank partner and chief economist James Roberts says: ‘On leasing demand, the market has been pivoting away from finance for some time, and looking at the [last quarter] deals and active searches, it is apparent that demand from technology and creative firms has held up well since the referendum. 

‘We have ongoing searches for Expedia, Spotify, and Playtech. Even some of the active office searches for non-tech firms are actually for their digital businesses, as shown by HSBC’s requirement for its digital arm. We see Brexit as accelerating the pivot away from finance in the London economy, with tech supporting office demand.’

This is good news for architects. As Renée Searle, a partner at Threefold Architects says: ‘In terms of design intent working for clients like [tech firm] Airbnb allows you far greater opportunities than say, a bank or insurance company. 

‘Perhaps the drift of these younger companies into the City is a result of the increasingly competitive rents in fringe areas like Shoreditch and Clerkenwell.’ 

She adds: ‘Though people may be taking the foot off the gas, these clients remain pretty positive. We certainly haven’t seen any palpable drop-off in enquires from tech firms.’

Any dip in general demand for space in the City would be clear in the number of schemes hitting the planners. And there simply hasn’t been a reduction in volume, according to Christopher Hayward, chairman of the City of London Corporation’s planning and transportation committee. ‘As a committee we are as busy, if not busier than before,’ he says.

‘The 22 Bishopsgate decision has settled people and calmed nerves.’

Hayward foresees a busy six months ahead, including the proposed City giant at 1 Undershaft by Eric Parry Architects, backed by Singapore-based developer Aroland Holdings, which is expected to go to committee later this month.  

There are also proposals for a huge Hong Kong-funded skyscraper by SOM at 100-112 Leadenhall Street. 

Off the record, industry sources say that many UK developers in central London, while not unduly worried by Brexit (whenever that might be given the recent High Court ruling), are not willing to put spades in the ground until they can secure substantial overseas investment.

The approach appears to be: proceed with caution until foreign cash materialises and moves schemes on to the next level. And of course the UK is suddenly a tempting target in terms of value, given the weakness of the pound.

Nick Deacon of director of Central London Offices at TH Real Estate, the developer behind Make’s 40 Leadenhall scheme – aka Gotham city – says they will begin a proper search for funders once the project is a third pre-let. That source of cash could well be from overseas.

‘We have been in discussions with a number of groups post-Brexit who have become increasingly interested in investing in London following the devaluation of sterling,’ he says.

‘There does seem to be more noise in the market and a growing focus on a build-to-hold strategy from some investors who are struggling to find suitable existing investment stock .’ 

But not everyone believes the picture is rosy, especially amid reports that a London office scheme by Spanish architect Luis Vidal remains on hold as a result of the vote in June.

David Green, director of Belsize Architects and a former head of the European division of the Bank of England, warns that a cloud of uncertainty will hang over ‘all but the most prime developments’ until mid-2019 at the earliest.

He explains: ‘While the recent decisions by international investors to proceed with major new projects in the most prime locations now that sterling is much cheaper are welcome, they tell us little about longer-term prospects. 

‘The risk that Brexit will result in substantially lower demand for both commercial and residential property has not gone away. The fog surrounding this cannot dissipate until the likely outcome of the Brexit negotiations becomes clearer. Barring an unexpected political breakthrough, this seems unlikely for at least two and half years.’ 

The recent investment news has done nothing either to allay the other main Brexit fear: freedom of movement for those working on these schemes.

Fred Pilbrow of Pilbrow and Partners, who has a number of commercial projects on his books across London says: ‘From a work standpoint … we are busier now than any time since we set up three years ago. We have two projects that are going forward directly as a result of Brexit, and in general the level of confidence among our clients seems to remain high. Is this the calm before the storm? 

‘Certainly the realities of detailed negotiations lie in the future. London’s success is grounded in its open outlook and global connections. Barriers to trade and movement must remain a significant risk.’

Even Polisano, whose practice has recently been recruiting, has fears about the future of his staff.

He says: ‘I am still very worried about what Brexit will mean for our workforce. 75 per cent come from someplace else. 

‘If we have to wait six months [to get a visa] for somebody, opportunities are going to be lost.’

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