Westminster City Council’s planning chief has warned that the Localism Act could discourage the development of new office space.

Rosemarie MacQueen, strategic director for the built environment at the council, said the community was “flexing its muscles” in anticipation of the legislation coming into force in April.

“In Westminster you are likely to get a receptive audience from local residents when something is being refurbished rather than redeveloped,” she said. “That can be a challenge. I don’t want to see poor-quality buildings being refurbished because it seems easier.”

MacQueen was speaking at Property Week’s Big Debate, which brought together leading figures from the capital’s office development industry to ask whether new or refurbished buildings should spearhead the London office market’s recovery.

The discussion was held on 24 November at the City of London office of law firm Speechly Bircham, co-sponsor of the event with project management company Buro Four. It was chaired by Simon Allford, a director at architect Allford Hall Monaghan Morris.

Paul Williams, a director at developer Derwent London, spoke in favour of refurbishment. He also suggested that the difficulty of obtaining planning permission encouraged the re-use of existing buildings.

“Planning in central London is tight and likely to get tighter,” he argued. “Knocking down buildings [and redeveloping sites] brings with it massive planning gain. That makes things very difficult from a viability point of view.”

He added that Derwent London’s calculations indicated a rent of £50-£55/sq ft was necessary to make a new building in the capital viable. He argued that, while that level of rent is achievable in the West End, conservation area status and a high proportion of listed buildings make wholesale redevelopment less viable.

Williams said that refurbishment specialist Derwent has let 475,000 sq ft in the capital this year and has received planning consent for a further 500,000 sq ft. Drivers Jonas Deloitte’s winter 2011 crane survey underlines the increasing popularity of refurbishment with developers. It showed 7.2m sq ft of office space under construction in central London, 64% of which was property undergoing significant refurbishment.

However, Peter Ferrari, managing director of property development at Heron International, said that continuing uncertainty over the economy has held back occupier demand and kept rents in check. Speaking in favour of new building projects, Ferrari argued that, as a consequence, the demand that does exist is likely to gravitate towards the best-quality space.

Heron completed construction of the 440,000 sq ft Heron Tower in the spring. At 230 metres it is the tallest building in the City of London and has achieved rents of £62-£63/sq ft, almost £5/sq ft higher than the average level for the area.

Ferrari contended that occupiers are seeking high-specification, energy-efficient buildings close to transport interchanges: “That means that many buildings are not suitable for refurbishment. They are functionally obsolete.”

Creative thinking

Williams countered that, in the wake of the financial crisis, much of the tenant demand in central London is from the creative and telecommunications, media and technology (TMT) sectors, and that those types of companies prefer to occupy “interesting” buildings that strengthen their brand image for innovation.

Dan Bayley, head of central London at BNP Paribas Real Estate, also identified the demand from the TMT sector as a factor driving developers towards refurbishment. He said that, at present, he would not advise clients to consider building a “Heron Tower mark II” in the City of London core because two new towers, British Land’s Leadenhall Building and Land Securities’ “Walkie-Talkie” scheme, are both scheduled for completion in 2014.

On the other hand, he would favour a development on the northern fringe of the West End or in Midtown aimed at the TMT sector.

“Does it matter if it’s new build or refurbished? No, but it needs to have a sense of place and it needs to be a scheme that excites people,” he argued.

When asked if he favoured new-build or refurbished offices, PWC real estate director Paul Harrington, who was the sole occupier on the panel, said he was “unashamedly sitting on the fence”.
He said the accountancy firm’s new offices at More London had transformed its way of working and its relationships with clients. However, he added that it had also decided to retain and refurbish its offices at Embankment Place where employees loved the location, even if they hated the interior of the building. “It needed a significant transformation. For refurbishments to work, they have to be innovative.”

MacQueen contrasted Westminster, where new planning applications have fallen by only 5%, with the City of London, where they have declined by 25%. She suggested the diversity of Westminster’s property had helped to support “the largest concentration of creative and media industries in the world”. Which is more sustainable?

David Leedham, a partner in Speechly Bircham’s real estate team, speaking from the floor, raised the question of how issues surrounding embedded carbon and government efficiency schemes such as the Carbon Reduction Commitment Energy Efficiency Scheme would impact developers’ and occupiers’ decisions on whether to favour new building or refurbishment.

Panellist Martin Worthington, director of safety and sustainability at Morgan Sindall, said his starting point was to favour new buildings as a means of increasing efficiency and satisfying environmentally conscious corporate occupiers. He argued that new buildings offered “the clean piece of paper and the innovation that might be allowed through that,” although he admitted that he was beginning to hear strong arguments in favour of the sustainability of refurbishment projects.

Williams advocated refurbishment as the more sustainable option and one that would appeal to the “Blue Peter generation” of occupiers, brought up to be concerned about the environment. He claimed that retaining the concrete structure at Derwent’s Angel Building in Islington had saved 7,500 tonnes of embodied carbon, equivalent to building 1,250 homes, or running the building for 13 years.

“We cannot keep on wasting energy by knocking things down,” he reasoned.

Williams also pointed out that refurbishment is cheaper, and saved £40-£50/sq ft in construction costs at the Angel Building. Lower costs allow Derwent to offer “middle market” rents of £35-£55/sq ft, which are affordable for TMT companies, he said.

Bayley admitted the force of these arguments. He said that, although development in the City of London has tended to default to new build because of the technical demands of occupiers, many of the 1980s and 1990s buildings in the Square Mile might be candidates for comprehensive refurbishment.

“Partly because of sustainability and partly because of the economic arguments, you will see a lot more thought before those buildings are knocked down,” he predicted.

The verdict

Summing up, Heron’s Ferrari appealed to the audience to imagine how London would look in 30 years’ time without new buildings.

“How would London be regarded on the global stage against cities like Shanghai and Singapore if we didn’t have great new buildings?” he asked.

Williams took that argument head on: “I don’t want London to turn into some kind of mid-Atlantic city with lots of skyscrapers. I think we have a responsibility to look after our existing stock. I believe 98% of it can be maintained. You can change it and improve it,” he insisted.

The audience agreed with him, backing refurbishment by around two to one.