Race to the top: what the constant demand for the high life means for the next phase of City towers

AXA IM Alts is about to begin construction of its development at Fifty Fenchurch Street, while 22 Bishopsgate, also developed by AXA, is now fully let. There are planning permissions in place for several other City towers, all due for completion in the next decade.

Towers are not a new phenomenon; indeed Adelaide House, considered the first skyscraper in the City, was completed 100 years ago. Their popularity seems to be able to weather market changes more readily than low-rise buildings, but why is that? For developers, a tower maximises the leasable space on a given footprint and occupier demand has historically been strong, so the financial benefits are obvious. Savills data shows that tower rents have increased by 16% in the last five years, and command a 25% premium compared to average grade A buildings.

The consistency of planning permissions in the Square Mile also makes developing towers attractive. Our data shows vacancy rates for towers are 4.3%, well below the 7.7% for the City as a whole. So why do occupiers continue to flock to them, and what challenges are there in occupying a tower?

Benefits for occupiers

It’s not unfair to say that there’s an element of vanity in occupiers taking space in towers; being able to give a distinctive name as the company address, such as The Walkie-Talkie or The Gherkin, gives an immediate recognition of the location of the business. For employees and clients alike, that demonstrates a certain level of prestige, as does the ability to point the building out in the skyline or from ground level.

From a practical perspective, towers often have greater levels of natural light, while the lucky occupiers towards the top also benefit from good. Even in clusters of towers, the demand for height isn’t dampened by competition: being in a tower cluster is seen by some occupiers as better than being in one of a cluster of low-rise buildings.

What are the challenges?

The main challenge for towers is timing. Ideally, developers would complete buildings, close out any snags and commission the lifts before occupiers start their fit-outs. But it’s common that development delays eat into the contingency baked into build programmes. For occupiers, that means fitting-out while the basebuild is ongoing. This can be particularly pertinent if the building has been pre-let prior to completion.

Alongside that is the possibility of complex logistics strategies that can involve off-site consolidation centres, adding an extra layer of organisation to consider. One of the defining characteristics of a tower is its height, and they’re often home to multiple occupiers. Sufficient goods lifts should be negotiated at the outset to ensure furniture and materials can be transported efficiently to the right floors.

Towers also come with their own health and safety requirements which must be taken into account both during and post fit-out. The insurance set-up is crucial, particularly the question of whether the landlord offers a waiver of subrogation. If it doesn’t, occupiers are required to take out standalone policies for reinstating the entire building, potentially for hundreds of millions of pounds.

Getting it right

With such large and complex structures, there’ll always be pressure points and challenges to be navigated with towers, but history tells us that these don’t put occupiers off. While the fit-out and logistics are unlikely to be plain sailing, they can be managed effectively with the right advice. Low vacancy rates tell us that towers remain popular, and it’s clear that occupiers will continue to want the prestige that they offer.

Further information

Contact Simon Standfast or Paul Bennett

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