London will need four more Shards to meet growing office demand

As the UK’s financial sector regains its health, demand for office space in Central London is expected to soar with an extra 1.6m sq. ft. needed over the next three years.

London will need to develop more than 1.6 million square feet of office space – equivalent to four more Shard skyscraper projects – if it is to meet rising demand from the UK’s financial services sector.

The country’s banking and financial services sector is expected to hire an additional 11,500 employees over the next three years as the economy recovers, according to a research report by BNP Paribas Real Estate, adding additional pressure to the city’s real estate supply pipeline.

In its biannual survey, BNP interviewed a range of institutions about their future growth prospects, revealing banks’ expansion could mean “extra requirements of roughly 550,000 square feet per year up to 2014”.

Dan Bayley, head of BNP’s Central London real estate group, said in a statement that the 1.6 million square feet of space needed by financial institutions over the next three years was “purely for banking growth requirements above and beyond existing or relocation requirements for the banks, and on top of all the other sector requirements within Central London”.

However, despite soaring demand for space, Bayley warned that deals for office space also could be smaller in size with landlords needing to lease to a greater number of tenants. “The general trend seems to be that the smaller (perhaps more nimble) occupiers expect to see the strongest growth; the really big banks are only expecting very modest growth,” he said. “My message to developers is clear: financial sector demand will be there and the occupiers will pay the rents, but your schemes may be more multi-let than you expected and the occupiers will push hard for lease flexibility.”

In August, UK development firm British Land and The Blackstone Group unveiled plans to redevelop part of the 16-building, 4.4 million-square-foot Broadgate complex to create more space for UBS, its biggest tenant. Blackstone acquired a 50 percent stake in the property in 2009, investing an estimated £77 million of equity and assuming approximately £1 billion in debt through its €3.1 billion Blackstone Real Estate Partners Europe III and its Blackstone Real Estate Partners VI funds.

Meanwhile, speculative office developments are finding traction in London, with the UK REIT Land Securities selling the partially-completed development, Park House, on London’s Oxford Street to the Qatar development company, Barwa Real Estate, for £250 million. Barwa, which is 45 percent owned by Qatari Diar, the property arm of Qatar’s sovereign wealth fund, is set to pay for all construction costs and take part in a profit-share with Land Securities upon the project’s completion.