Eoin Ó Murchú: Hello. My name is Eoin Ó Murchú, and welcome to Deloitte’s podcast series, Futureproofed, where we explore and debate the emerging trends across the real asset infrastructure and real estate sectors. Today’s episode is focused on real estate, and specifically London and the results of the Deloitte London Office Crane Survey, which for the past 25 years has been a barometer of business and developer sentiment in London.
I’m delighted to be joined in the studio today by two Deloitte colleagues to discuss the insights from the data survey: Margaret Doyle, Deloitte partner and chief insights officer for the firm – Margaret leads a team that explores the exciting trends in real estate and in financial services – and Sophie Allan, a Director in Deloitte’s Real Asset Advisory team who specialises in development consultancy, with a particular focus on transport nodes. Welcome to you both.
Sophie, I’ll come to you first. The London Office Crane Survey Winter 2023 was launched this week to much acclaim in Deloitte’s New Street Square offices here in London. For those who’ve never heard of the London Office Crane Survey, what is it?
Sophie Allan: The London Office Crane Survey is led by our tax partner, Siobhan Godley, and it records everything coming out of the ground in the London office market, and we look at everything about 10,000 square feet across London. When do we do it? It’s every six months, so this current survey period is April to September this year. And how do we do it? We conduct a whole host of research. We undertake surveys, but we also walk the streets to actually see what’s coming out of the ground, and then we verify everything with experts, but also developers themselves.
Eoin Ó Murchú: Sophie, in the recent launch, the key findings from this year’s survey were released, and I think it’s fair to say they were more positive than anticipated. Can you expand on some of these?
Sophie Allan: Yes. It’s always interesting to see what comes out, particularly in the market at the moment. Probably my two key findings were, firstly, that the survey has seen the highest volume in terms of square feet of new starts on record since we started recording our extended survey in 2005. This was 5.1 million square feet of new starts across 43 schemes and was up 16% on our previous survey. It’s interesting to note that this covered five particularly large schemes which we’ve considered as 300,000 square feet or above, which marked 40% of the overall volume. A second key takeaway that I was particularly pleased to see was for the second time in a row, refurbishment volumes have broken records. So, 23 of the 43 new starts were actually refurbishments, which equated to 3.4 million square feet. This is important, because as most of us would know, refurbishments are more friendly to the environment, and savings on carbon and ESG.
Eoin Ó Murchú: And Margaret, the City has recorded some of the highest volume of new starts since the pandemic.This is what’s got you quite excited.
Margaret Doyle: Well, no – so it’s really interesting, because one of the things we’ve seen for the past few surveys is that it’s actually the West End that has taken the top spot, and that’s very unusual, and we felt that there were particular factors at play that made the West End so popular. One is that we’re in an environment of high uncertainty, and the West End has traditionally commanded a premium over the City and the other sub-markets. So if you’re in uncertain times, well, then, you obviously prioritise where you’ll get the highest return.
The other thing that we know about the West End is that it’s not a market of tall towers in the main. We’ve got one or two exceptions, like around Paddington. And there are a lot of old and listed buildings, and so we saw a trend towards refurbs, because we know that at the moment the government plans to make it a requirement for all office buildings to be EPC Grade A or B, the top grades, by 2030. So if you’re a landowner, well, then, you absolutely need to make those refurbs to ensure that you are legally compliant.
But what’s changed this time is that the City is back, and we have seen that partly as a result of a few very big new builds, and one large refurb, the City is back in the top spot again. The other interesting factor is that developers are now saying they expect to achieve operational Net Zero by 2040. We’ve had varying responses. This is probably not as ambitious as some of the responses we’ve seen before, but we think it’s a sign of new realism among developers.
Eoin Ó Murchú: One of the more interesting observations I took away from the survey was the positive pipeline of opportunities. Margaret, is it all positive?
Margaret Doyle: Well, I think it’s very reassuring. Whether it’s going to continue, I think it’s too early to tell. I think there are a few factors at play here. One is that I think, to the extent that there is demand for space – and this is a trend that our colleagues, Philip Parnell and Tony Macaulay, have talked about for years – there’s definitely a bifurcation in terms of quality. And that’s across a number of factors, but of course sustainability is one of the most important.
So we think that there will be a demand for that premium space, and of course, the City is a premium location. We think that there will be defensive investment in refurbs, as I was mentioning earlier. It's probably the case that London is going to be a relative winner. If people need to be enticed back to the office, they’re more likely to go to central locations where there are restaurants, theatres, museums, and lots of other things to do.
So, we definitely think that drive is probably going to take us through to 2030, but a lot of the debate over remote working, hybrid working, is still playing out. And the other factor, of course, is interest rates. The path of interest rates is uncertain. So, the crystal ball is looking a bit cloudy at the moment, Eoin.
Eoin Ó Murchú: Yeah, a couple of outliers there from the cost of construction, and I guess the challenge for Grade A space is probably at a premium as well in the City. Sophie, how is this compared to previous surveys?
Sophie Allan: So, I think we continue to see positive increase in new starts and refurbishments, despite the economic environment and high construction costs, which is an ongoing theme which is positive to see. I think we also see that developers are more realistic in terms of sustainability targets, so they’re now saying that the majority expect to achieve it by 2040, whereas previous surveys, we’ve seen them stick at that 2030 target. I think there seems to be more of a sentiment of a steady pipeline that we’re seeing. I feel that developers have a better understanding of how to deal with sustainability, and also how to deal with the continued cost in material challenges and finding ways round that.
Eoin Ó Murchú: That’s really interesting. And I think what’s fascinating is how quickly things can change in a short period of time. Earlier today, Sophie, Margaret and I spoke to deputy Shravan Joshi, chair of the planning and transport committee at the City of London, to test his insights and to gain some further clarity on some of the key observations that this year’s survey has uncovered.
Shravan, thanks for taking the time to join us today. We’re really interested to get your views and thoughts on this year’s London Office Crane Survey, in particular the observation that there’s been a record number of starts in the City this year. What’s enabled this, and is this positive news for the future?
Shravan Joshi: Thanks for having me on the podcast today. I think it’s great news that we’re seeing coming out of the survey. I think partly expected. There was a hope, perhaps, that we would see these figures coming through as they have. I think underlying that really is a flight to quality. There is a huge demand for really high-quality, well-connected office space for global occupiers, actually, looking to London as their base. So you’re not just seeing domestic firms coming in – you’re seeing new sectors occupying the Square Mile. We’re seeing a huge growth in tech employment within the City. We’ve had an uptick of about 27% in tech employment year on year. We’ve seen a 5% growth in employment overall in the Square Mile, and so obviously with that growth, you should see strong, healthy demand coming through as the survey reflects.
Eoin Ó Murchú: Yeah, it sounds like that. So it sounds like there is a strong pipeline of opportunity. Is that what you’re seeing on the ground? You mentioned the tech and the uptick in that. Is that similar across other sectors?
Shravan Joshi: It is. We’re seeing, for sure, that the balance between hybrid working and new employees is now being struck. So I think we’ve hit that tipping point, really, where there are new workers coming on stream and wanting to be in the workplace, and specifically in the legal and insurance sectors we’re seeing very, very strong figures of people coming back into the office, usually associated, I suppose, with the format of that career, where you need people in the office for mentoring, for articleship, for professional qualifications, and that is driving people to come back and further their careers.
Eoin Ó Murchú: Another observation from the survey was the time taken to complete planning. Why has this become such a challenge in recent times from your perspective?
Shravan Joshi: I think partly because we are working in a still-evolving space around where sustainability and where the heritage balance really sits across London, and across the whole planning arena actually. And so what we’ve found is, there’s been a sort of evolution of policy over the last few years, and what we’ve tried to do is push that debate right to the front. So we’ve asked for very early pre-app meetings for real clarity from developers on how they’ve come to their decisions on retrofit versus redevelopment. And they’ve got to put forward quite strong cases for moving towards redevelopment, and I think providing that clarity hopefully will ease the process, I’m hoping, a lot more. We’ve also got our local plan coming through, which again we’ve worked really hard on to create a framework of policy, which again should give developers and investors more confidence in that planning process.
Margaret Doyle: Shravan, you spoke about the flight to quality, and definitely that’s something that we’ve been forecasting for some time, that there’s definitely going to be bifurcation in the market, particularly around carbon. Now, one of the things our developers are saying is that they now expect to be operationally at Net Zero by 2040. Does that chime with both what you’re seeing, but also the requirements that you’re putting in for developers?
Shravan Joshi: Yes, and I can speak from our own perspective in the corporation. We are aiming to get to Net Zero on our own operations by 2027, and we are well on track to achieving that. We are starting to see the development community really embracing that – not just the retrofit of buildings, rather than just going straight for redevelopment, but also starting to use materials more sensitively. We’ve started to see things like material passporting coming through, the reuse of materials, the sensitive reuse of facades.
Margaret Doyle: Well, interesting what you say about facades, because the Financial Times had a piece recently about a new refurb in the City of London in Hatton Garden. I’m sure you know the one I’m talking about. It was Seaforth Land, and they had a very ordinary 1970s building, and they put a mesh around it, a kind of a rusted mesh. So it’s that sort of approach. Are you seeing more of that imagination, as it were?
Shravan Joshi: Absolutely. And we are seeing quite imaginative uses, and quite sensitive uses as well, from a heritage perspective. We’re seeing a lot of stone being reused, a lot of frontages being reused.
Margaret Doyle: Well, interesting what you say about facades, because the Financial Times had a piece recently about a new refurb in the City of London in Hatton Garden. I’m sure you know the one I’m talking about. It was Seaforth Land, and they had a very ordinary 1970s building, and they put a mesh around it, a kind of a rusted mesh. So it’s that sort of approach. Are you seeing more of that imagination, as it were?
Shravan Joshi: Absolutely. And we are seeing quite imaginative uses, and quite sensitive uses as well, from a heritage perspective. We’re seeing a lot of stone being reused, a lot of frontages being reused.
Margaret Doyle: Shravan, tell us, how do you cope with the fact that the City has got a lot of very ancient, very distinguished, often listed buildings, that you own and are responsible for yourselves?
Margaret Doyle: And Shravan, you very kindly invited me and some of my colleagues from real estate, Jeremy Castle and Lauren Raw, to one of your viewing platforms. You talked about the cluster of towers. So that’s also a new development. You already had one in Fenchurch Street, but now you’ve got a couple more, and more in the pipeline.
Shravan Joshi: Yeah, there are several viewing galleries in the pipeline. We’ve seen huge success from these spaces. I think Sky Garden celebrated their 10 millionth visitor earlier this year. I got preliminary figures from both The Lookout and Horizon 22, showing that they had around 100,000 bookings since they’ve been opened, so that’s about two months. It’s phenomenal. We’ve worked really hard with developers, and in sync with them, to ensure these spaces are available free of charge. It’s really important that we can activate these buildings. And it goes much deeper than just providing a viewing gallery. I think it’s about how you make these buildings part of the cultural aesthetic of the Square Mile. Whether you do it on the ground floor plane or whether you have an education facility in the building, or a cultural activation, or a viewing gallery or a rooftop garden, all of these things have to come together to create the ecosystem we want, which makes the City a much more welcoming place, not just for the worker or the resident, but for visitors, for tourists, for families.
Eoin Ó Murchú: I’m sensing a lot of enthusiasm and optimism for the immediate future, which is great. Is that fair to say? What has you most excited about the immediate future from a real estate perspective in the City?
Shravan Joshi: So a couple of things that I think are coming through the pipeline are architecturally and engineering wise, really interesting. We’ve got buildings coming through using new materials, using new engineering techniques, using new ways of thinking about retention of core, embedded concrete foundations. That sort of thing, while it may seem to then be lost once the building is there, is actually really important and pivotal if we’re going to create the city of the future. We’re seeing huge growth that I mentioned before. We’re seeing huge growth in the number of tech employees, the number of tech firms and innovators coming into the City. We’re seeing creative arts and media setting themselves up in the Square Mile. We’re seeing a lot more people in T-shirts and jeans and trainers walking around, and I want to create a city that really does have that full plethora of user.
Margaret Doyle: Shravan, you talked about science and tech and the creative types. And our mutual friend, Mike Mainelli, the current Lord Mayor, has made a point about this, and he says that there are more scientists, engineers, etc., than there are bankers. But do you think that that shift – how much of that shift away, is that due to perhaps the travails of the financial services sector, whether we call it travails? But obviously we’ve had Brexit, we’ve had cost-cutting, we’ve had the rise of certain technologies. How much of it is, the financial sector maybe declining as an occupier, and how much is it that actually office space in the City now provides value for money and is…?
Shravan Joshi: So whilst I focused on the tech jobs, professional services jobs also saw a 14% increase year on year as well. You’ve got to remember, the Square Mile now accounts for one in every 52 jobs across the UK. Whilst we have this focus of financial services, actually most of the employees in financial services don’t work in London. They work outside of London. And the City Corporation’s role of representing financial professional services covers the entirety of the UK. I think when you look at where we are going to go in terms of creating skills and experience centres of excellence, you are going to get an accumulation of firms from the same sector. And to me, if London’s going to retain its position as the premium global financial centre, you’ve got to have that clustering of sectors, which is all healthy. And I don’t see that as competitive – I see that as a very natural, organic move of firms to be around each other and grow off each other, and hopefully that will drive SME growth as part of the supply chain to those big professional services firms also wanting to be in that ecosystem.
Margaret Doyle: Well, we in Deloitte love being in the City of London, Shravan. But you talked about tech. And do you think the City hasn’t been a traditional tech centre? That’s perhaps been King’s Cross, Battersea. We know that maybe Docklands and Stratford are also aiming for perhaps the fintech space. So do you think the City is winning at the expense of these other clusters, or do you think that actually there’s space for many, many clusters?
Shravan Joshi: I think there’s space for everyone. I think there’s plenty of space for London to succeed. We’ve almost got to get over ourselves, the Mayfair set and the Canary Wharf set and the City set, the King’s Cross set, are somehow separate bubbles. If we’re going to succeed economically, we’re going to have to all work together on this. And so I saw a really interesting graphic the other day. It was a heat map of the finance source for a lot of the fintech sector. Absolutely generates out of the Square Mile. Now, that doesn’t necessarily mean that those firms delivering life sciences necessarily need to be based in the Square Mile. We’ve got some great campuses emerging in Canary Wharf, in King’s Cross. We’ve got hubs across Cambridge and Oxfordshire. We’ve got to make sure that ecosystem works really well. You’ve got to make sure you’ve got infrastructure that supports that and transport that supports that as well. But we’ve got to think a bit more broadly than just in those little microcosms, I think, if we’re going to succeed.
Margaret Doyle: So Shravan, in other words, you don’t think that it’s London winning with that agglomeration, and maybe perhaps winning versus over the suburbs or over the regions.
Shravan Joshi: I live in a very fortunate role in the Square Mile. We’re restrained by our geography, and so for us the concept of urban densification is something that we’ve understood very well for many centuries, not just in recent times. And so for me it’s a very natural argument to talk about urban densification and the desire to draw people in to a central point to conduct their work and to prosper in that space.
Margaret Doyle: Shravan, when you gave Sophie and me a tour of the City, and we had some lovely photographs taken, we crossed the Millennium Bridge, you were talking about a golden thread of culture, and you’ve spoken earlier about improving the offer of the City. How are you getting on with those plans?
Shravan Joshi: Absolutely. It’s full steam ahead.The Museum of London commitment to take on that space in Smithfield is driving forward at pace. The entire development along 81 Newgate, which you may have seen, is now going to be occupied by HSBC, and creating a brand new public square right in front of it that, as I said to you when we spoke, provides that sort of line right through to St Paul’s, and then beyond to the Millennium Bridge and the Tate Modern. I think you’ve got a great opportunity there to create, as I said, a real cultural thread. It’s not a great distance. It’s a mile and a half, I think, in total. And then the opportunity that the East West Market in Smithfield also brings up for the future means that there’s further opportunity to create that real cultural hub in that bit of the City. And then of course, it’s serviced very well now out of Farringdon Station with the Elizabeth Line presence there as well, where we’ve seen major tech firm taking up 130,000 square metres of space just above it.So you’ve got that mix of really vibrant industry moving in as well, alongside those real cultural highlights that the City’s got to offer.
Margaret Doyle: Shravan, when we met we discussed the Elizabeth Line in detail. You just mentioned Farringdon. Can you expand on other benefits and impacts you’ve seen from it, particularly around Liverpool Street?
Shravan Joshi: Absolutely. The Elizabeth Line is now the busiest rail line in the UK, which is phenomenal, thinking it’s just over a year old, a couple of years old. It’s brought in the potential of 1.4 million more people from the South-East being an hour’s commute from Central London. When you think about what that means in terms of the job opportunities, the economic opportunities, for people in the South-East, you really start to understand how critical infrastructure is and public transport is to economic growth and prosperity. And I think the Elizabeth Line absolutely manifests that. What we’ve seen around Liverpool Street is very interesting. As a station, Liverpool Street is now pretty much back to its pre-pandemic levels of use, and we’re seeing huge volumes of traffic, not just across the week but on the weekends, in Liverpool Street, as the social elements around that area also have emerged. And so the station itself is going through a change of demographic coming through it, and the Elizabeth Line has absolutely been pivotal to that re-emergence above and beyond any other rail terminal that we’ve got in the Square Mile.
Margaret Doyle: Shravan, one of the things that our colleague Tony Macaulay talks about when he’s speaking to occupiers is the quality of the space, including the importance of outside space – something that’s increased since the pandemic. Obviously it’s very nice to have a terrace, but in addition to how pleasant it is, the City is also trying to encourage people because of the biodiversity benefits. So can you tell us about, as chairman of the planning and transportation committee, the approach that you’re taking to biodiversity in the Square Mile?
Shravan Joshi: Absolutely. We’ve got this embedded within our local plan. There’s a biodiversity policy that we’re bringing through that, I suppose, strengthens what we’ve already been doing recently, where we want a much wider breadth of pollinators and wildlife and vegetation within the Square Mile. And this is really important, not just for the ecological purposes, but also for the environment it creates for us to occupy and be in. We’ve got a healthy streets plan for the Liverpool Street area, for the Fleet Street area, and these are very much around prioritising the quality of air that people breathe when they’re in these areas, these highly busy, dense areas.
When we did surveys of what reasons people have to come in to the City, and amongst the worker population, one of the top reasons is those pocket parks and those open spaces that we’ve created – those little hideaway nooks and crannies that we’ve got all across the City, which do provide a huge opportunity for biodiversity to really flourish. And so we’ve got to do more of that, and we’re embedding that within the local plan, we’re embedding biodiversity corridors within the local plan, and we’re also embedding that activation of space in new buildings to encourage more of the same.
Eoin Ó Murchú: Shravan, today we’ve touched upon the impact that the Elizabeth Line, ESG, and the new and emerging sectors in the City have. As a final question, what do you consider to be the biggest opportunity in the immediate future coming from all of these things we’ve touched upon today?
Shravan Joshi: There’s a balance between the absolute demand that we’ve got for new office space and making sure that we do that in a way that is sustainable and responsible for the future. For me, success, from a planning perspective, is getting that balance absolutely right, so that we create an equilibrium in the market where investors, developers, constructors, financiers, tenants, SMEs, are all on the same understanding of the kind of space they’re coming into and what they want out of that space. And that to me is what success looks like, and that to me is the greatest opportunity we’ve got, perhaps in a generation, to get that message right through correct policy setting.
Eoin Ó Murchú: Thanks very much for your time today.
Shravan Joshi: Great, thank you.
Eoin Ó Murchú: That was a really interesting conversation with Shravan. And one of the key observations I took away from that, Sophie, was the positive role transport is having on the City of London. What were your views?
Sophie Allan: I agree. The impact of the relatively new, now, Elizabeth Line has really transformed, well, London across the board. Shravan obviously mentioned Farringdon and Liverpool Street, and it’s fantastic to see. I think we also talked about the importance of best-in-class assets. One of the top-cited important factors in a top-of-the-class range asset is the proximity to a transport node, so I think, going forward, we’re going to see more being developed around the transport nodes, and perhaps the creation of even more places, mixed-use regeneration. Normally, we see it anchored by a cultural use or an education use, so combining the transport alongside wider regeneration to really improve the City and create places that people want to come to and live in and thrive.
Margaret Doyle: Do you know, what struck me is just the sheer confidence from Shravan. He was absolutely just brimming over. And I guess as I reflect on it – and I’ve worked in the City for many, many years, and I’ve interacted with the City of London Corporation – the City has been a trading centre for probably about two millennia. It’s a very old organisation. It was here when William the Conqueror arrived. And there is a reason. Institutions survive for centuries for a reason. And I think what we saw in what Deputy Joshi said is actually the reasons that the City has that kind of resilience lasting centuries.
And it has an ability to reinvent itself. When we think of the City of London, the City is synonymous with financial services. But the City Corporation is now effectively trying to change that and say, ‘Well, actually, we’ve got this very old heritage of being a centre of manufacturing, a centre of invention, of innovation, and of creativity.’ And you see that of course if you go round the livery halls. There are mercers and goldsmiths and all sorts. So what it says to me is that the City has huge confidence. It’s embarked on a reinvention of itself, and actually seems to be doing a pretty good job of it so far.
Eoin Ó Murchú: I was really enthused to hear about the investment in biodiversity. I think that was something you’re quite passionate about, Margaret.
Margaret Doyle: Oh yeah, well anyone who cares about climate change or biodiversity or nature has to be enthused. But what’s fascinating is that the City has cared about this for a long time. So a previous City planner – I think it was Peter Rees – always said that he wanted to have, on any street corner, that you could see a tree. But the City is now putting that further, and it’s looking at corridors. And of course it’s very dense, so where do you get those corridors? And of course they’re not at ground level – they’re at bird level. So they’re at the level for literally the birds and the bees, but of course you have to have an ability for the birds and the bees to hop from one rooftop to another. And interesting that employers in the City are putting their roof gardens on their websites on the recruitment pages of the website, because they know that lots of millennials and Gen Z really care about biodiversity too.
Eoin Ó Murchú: That’s a really exciting time, I think. And finally, we touched upon a lot of stuff today, but I’m keen to understand, where do you see the market in London heading in the next five years? Sophie, I’ll come to you first.
Sophie Allan: So I think there’s going to be a continued trend to bless best-in-class quality. So it’s going to be really interesting to monitor what happens to the rest of this office stock that sits below that. But I can’t see that going away,and the continued focus on London. I would say there’s building on transport improvements, and I think further ones to come, and improvements to other parts of the transport infrastructure. We’ll see changes there, and it’s important that developers make the most of those. And again, I think we’re going to see more regeneration taking place, not just isolated use classes, but mixed-used regeneration to develop places, like we’re seeing at King’s Cross and Battersea, and look forward to visiting those places and creating further destinations.
Margaret Doyle: I’m curious about what we’re going to see in terms of digital, in terms of the use of technology, so be that to keep people safe when they’re in the City, but also things like when are the lights turned on and off, and is the air conditioning turned on and off. This whole idea of a digital twin. So I think that that’s really exciting.
And the other thing is that I suspect that what we’ll see over the coming years, Eoin, is a reconfiguration. So we’ve talked about it already – again, the Financial Times is talking about how the City of London is setting itself up as a dining destination. The West End was traditionally where you went to see. But it’s not just the dining destination – it’s not just the City. I think that we’re going to see probably more housing. We’ve already seen that there’s been a shake-out in retailing. But I think that more and more we’re just going to see those uses shift. I didn’t think we’ve seen the end of this story, so I think that the next 10-15 years – human beings take a long time to change, so I think that we’re going to see a lot more evolution, probably a lot more housing, but also maybe just things being mixed up a bit a lot more. Those areas of connection, I think are going to become more precious. If we are going to be spending more time in our own home offices, I think those times of connection are going to be even –
Sophie Allan: I think that connection point, on being able to get to the office and home, but also connectivity between industries, so for example the life sciences hubs in Cambridge and Oxford connecting into London, I think that’s going to improve and become more as one. So it will be interesting to monitor that as well.
Eoin Ó Murchú: I think that’s a positive place to leave today’s fascinating discussion. My thanks to our guests, Deputy Shravan Joshi, chair of the planning and transport committee at the City of London, and Deloitte’s Sophie Allan and Margaret Doyle for their insights and fascinating perspective. If you enjoyed today’s episode, please do take a moment to like and share, and of course subscribe, and keep an eye out for future episodes on topics covering all things from digital transformation, delivery excellence, and other exciting, interesting, and emerging themes across the real asset space. If you want to know more about the London Office Crane Survey, please explore the latest report on deloitte.co.uk/crane-survey. And if you’d like to find out more about Deloitte and Deloitte real asset advisory team, please search us online, where we’ve a host of blogs and articles available for you to explore. So, until next time, thank you all for listening.
