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London square mile rising as bankers' residential ghetto
[LONDON] The executives, bankers and traders priced out of London's fanciest neighborhoods are getting a new one.
A residential area is rising at the fringes of the famous Square Mile - the City of London financial district - to accommodate those who can no longer compete with the world's ultra-rich for shelter in Mayfair and Knightsbridge.
More than 2,000 apartments are planned or under construction from the Old Street roundabout on the northwestern fringe and along City Road stretching north. In the City itself, 842 units are in the works.
"Knightsbridge is one of the world's most desirable addresses, so if you want to buy a home there you've got to outbid buyers including sovereign-wealth funds and oligarchs," said Giles Hannah, senior vice-president Christie's International Real Estate. "Even those with the most generous financial packages will often struggle to do so."
Russian billionaires and investors from China and the Middle East have driven prices in Mayfair and Knightsbridge as high as 7,000 pounds (S$14,500) per square foot. New homes in the City and its fringe typically sell for 1,550 pounds per square foot, according to Jones Lang LaSalle Inc, a Chicago-based brokerage.
"The sort of folk that would typically live in London's West End in the 1990s and 2000s were weighted strongly toward your investment bankers, C-suite and private-equity workers," said Adam Challis, head of residential research at Jones Lang. "Wealth is now the determinant of what people can and can't afford, rather than income stream, so those areas are more weighted towards Middle Eastern oil wealth, the Russian oligarchs and the new money of Asia."
'NEW ASSET CLASS'
Home values in London's priciest districts have climbed more than 60 percent since 2009, when a cheap pound, record-low interest rates and the city's history as a financial hub prompted an influx of foreign investors. Mayor Boris Johnson called London property a "new asset class." Record-breaking sales became common. Christian Candy's CPC Group in May sold a penthouse in the One Hyde Park development in Knightsbridge that was valued at 175 million pounds. British Land Co. sold apartments in its Clarges Mayfair project near the Ritz hotel for more than 5,000 pounds per square foot, a record for the district. More than one of the apartments broke the record by a "big margin," Tim Roberts, head of offices and residential at the developer, said in September.
The stratospheric rise of the high end created an opening for developers a rung below.
Heron Tower The City of London, reluctant to allow homes to creep into the business district for fear they would slow commercial development, held off on granting permission for large residential projects until the Heron luxury tower, which was completed in 2013. Developer Heron International is seeking a buyer for a 15 million-pound penthouse.
Still, building has its limits. The district authority wants just 110 units a year.
"The extra residential is seen as a very low priority because extra residents scattered throughout the City would slow the development of commercial property," said Peter Rees, the City's former planning officer. "Immediately around the City, because it has been restrictive in its planning policy, we're seeing forests of blocks going up."
The repopulation of a predominantly commercial area echoes the evolution of Lower Manhattan, where tax breaks encouraged the conversion of office buildings to apartments and the development of Battery Park City led to a residential boom.
In the City of London, demand now "far exceeds" supply, according to Knight Frank LLP, a London-based broker. Prices there rose 1.3 per cent in February and were up 9.1 per cent in the previous 12 months.
The City, its population halved after the bombings of World War II, began repopulating in the 1960s with the construction of the Barbican complex, which includes three 42 story towers and half the district's 7,500 residents.
Now, Reignwood Group, the Beijing-based developer led by billionaire Chanchai Ruayrungruang, is converting the City's former Port Authority building into 41 apartments serviced by a Four Seasons hotel and a private members club.
The century-old building, partly destroyed during the Blitz, will boast a 9,000 square-foot penthouse overlooking the Tower of London.
"Last year, Chinese insurance companies invested 4 billion pounds in the City of London," said Songhua Ni, head of global investments and operations at Reignwood. "Their offices are all around here, maybe five minutes away, and when those people come they don't know the West End. These people are coming here."
CPC Group has permission to build 165 luxury apartments close to the Tower of London with Barratt Developments Plc. They'll begin selling the homes in 2016 or 2017, Mark Clare, chief executive officer of Barratt, said by phone.
Helical Bar Plc, a London-based developer, is building 236 apartments on the northwest fringe of the City. It sold 51 with seven reservations for about 65 million pounds, Gerald Kaye, executive director, said by e-mail. A penthouse sold for 4 million pounds.
"We are seeing very strong interest from British buyers from the financial services sector," Kaye said. "They are also working longer hours in the City, so the option of not traveling to another part of London appeals to them very much."