Land Securities Group (Landsec) has acquired a development site in Bankside, betting the district on the south side of the Thames is well placed to take advantage of post-Covid shifts in London office life. 

The real estate investment trust (Reit) now has a pipeline of six office projects spanning 1.4 million square feet (sq ft) in the area, which is sandwiched between two of the city’s busiest mainline train stations at London Bridge and Waterloo and contains the Tate Modern gallery, Shakespeare’s Globe Theatre and the food market at Borough. 

“Mainline connectivity is even more important than it has been,” chief executive officer Mark Allan said. “The area has a real buzz to it.”

Landsec, which Allan has run for four years, has bought a site on Ewer Street from Network Rail next to its under-construction Timber Square project, adding about 285,000 sq ft to its development pipeline.

It has already completed the Forge, a pair of zero-carbon office buildings, and has consent for two further projects in the area. This means the Bankside district will become the firm’s second-largest office cluster in London, behind the campus it developed in Victoria. 

The pandemic accelerated shifting working patterns, creating winners and losers in office markets around the world. Demand is concentrating on the best and greenest space that will help companies lure workers back and meet environmental targets.

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In London, a city that even before the Covid-19 pandemic had seen development plunge due to the shock Brexit vote, the polarisation looks particularly extreme. 

Vacancies in the most popular areas around Mayfair and St James’ are close to record lows and in nearby Victoria, Landsec’s portfolio is almost fully occupied. But older buildings in more peripheral locations are struggling to attract tenants and have seen their values plunge.

Now Landsec is betting the transport links, amenities and relatively cheap prices at Bankside could make it the next big winner. 

“We have actually had relatively little supply delivered into the market since 2016,” said Allan.

“On the demand side, there is an incredible focus from occupiers on best-in-class space and that’s because it is all about attracting and retaining the right calibre of workforce and encouraging them to want to be in the office for all the productivity, loyalty and collaboration benefits you get from that.”

The focus on specific neighbourhoods is an evolution for Landsec.

With the exception of two individual developments in the West End and City, its long-term London office portfolio is now almost exclusively focused on clusters in Victoria, the South Bank and New Street Square, where previously its pipeline was spread more widely across London.

Occupancy costs in Bankside, which is in the Southwark district, are slightly lower than the City of London once rents and business taxes are included and about half those of the West End. 

“If you are in a particular market, you know who is there, who is looking to up-size or downsize, you can move people around within and between buildings,” Allan noted. “You can deliver high occupancy and better rental growth.” 

Such advantages have become vital for publicly traded UK Reits, of which Landsec is now the second largest, having lost its long-held mantle to warehouse owner Segro in 2018.

London is the world’s most international commercial real estate market, meaning Reits must compete with an array of investors for projects, often finding themselves priced out of their local market. Rival British Land has also focused its London office portfolio on four key campuses.

“It is difficult as a Reit to compete with private equity,” Allen added. “They use more leverage. We need to own, create, curate real estate that has a real scarcity value to it. That’s what we have in Victoria and what we want to create in Southwark over time.” BLOOMBERG