When Cheyne Capital and Stanhope bought the site formerly known as Red Lion Court from Landsec last month, it was the first ground-up office development site to trade in central London for two years, an unprecedented barren spell for the UK capital.
The deal highlights the paradox of office development right now. It’s incredibly difficult. But get it built and get it right, and it has the potential to be highly profitable.
“For the best assets in the best locations, the occupational side is as strong in London as at any time in the past 40 years,” Stanhope CEO David Camp told Bisnow.
Courtesy of Stanhope
Stanhope and Cheyne’s Row One scheme
Camp and Stanhope Head of Investment Joe Binns said the challenges facing London office development are what make the sector so attractive, but there is a final piece of the puzzle that needs to fall into place to really unlock the market.
Row One, as the scheme has been renamed, is an 11-storey, 235K SF office development on a 1.2-acre site on the South Bank of the Thames next to Southwark Bridge. It has an end value of £450M.
Cheyne and Stanhope bought the tract from Landsec, which is selling down its London offices to invest in build-to-rent. That desire to divest meant it was realistic on price, unlike many other sellers, Camp said.
Cheyne is an equity investor in the project, with Stanhope also investing and acting as development manager. Cheyne is the lender at another Stanhope development, the nearby 76 Southbank, and that link-up was a big part of why the duo have teamed up again.
Rents at 76 Southbank are nearing £90 per SF, giving the pair pricing confidence.
Row One would have to do even better. Average rents of around £100 per SF would be needed to make the project viable, Binns said. While construction and labour cost inflation are more predictable and less elevated than they have been for the past three years, those costs remain high, as is the cost of capital from both equity and debt providers.
“The active money for value-add development is private equity, high-risk, high-return money because of the point we’re at in the cycle,” Binns said. “And as a consequence, development as a business plan doesn’t typically work for a lot of that kind of money.”
Courtesy of Stanhope
Stanhope’s David Camp
While the office market has improved rapidly, institutional investors remain generally unwilling to take the risk on new ground-up construction, which has limited the number of development sites that have traded.
Private equity firms have been keen to buy existing assets in the past year or to fund retrofits or refurbishments, which can be turned around more quickly than a new development.
The new schemes that have started have been backed by institutions like AXA or Aviva on sites they have owned for several years, and that kind of capital has not been buying new projects.
Row One is ready to start on-site immediately since Landsec already undertook much of the preparatory works. Development is expected to begin in early 2026 and take two years, a time frame that a private equity firm like Cheyne can get behind, but a rare situation.
The partners said they are confident they can hit the rents needed to make the project viable because rising costs and the lack of risk appetite in the market have held back supply of new, high-quality schemes, creating that 40-year sweet spot Camp talked about.
Binns pointed to an overall vacancy rate for London offices of 10%, but a vacancy rate of just 1% for Grade A buildings in super central locations like the City core or the West End.
That has caused rents to spike — up 31% on the South Bank in the past five years, 39% in the City core and 73% in Mayfair, according to Devono, albeit they were flat in the second quarter of this year.
Recent lettings showing the kind of rents that can be achieved include deals at Edge and Goldman Sachs’ London Bridge scheme a few hundred yards down the river from Row One, where the top floors were recently leased at a top rent of £130 per SF.
While the headlines about the wider UK economy are fairly gloomy, there are enough companies making profits and expanding in London to drive takeup and rental growth in London, Binns said — particularly U.S. firms.
Courtesy of Stanhope
Stanhope’s Joe Binns
“The world that we operate in, very prime central London, there are always people making money in any environment,” Binns said. “And when you look at the makeup of where some of these people are coming from, high-frequency quant traders are rubbing their hands every time Donald Trump takes to Twitter or something happens in the Middle East, because it creates activity.”
Firms that have announced major expansions in London like Jane Street or Citadel are not the big takers of space a decade ago, he said. And with them have come U.S. law firms, also making big profits and expanding in Europe to service their U.S. clients.
The final shoe to drop when it comes to getting new development going will be a return to the investment market of core investors with a low cost of capital. For anyone looking to fund a big office development right now, the open question is whether there will be a buyer for a £300M-plus office at a yield of 5% or less.
Deals like Modon’s investment at 2 Finsbury Avenue are a start, but there have been essentially zero large deals for fully let buildings at high rents in the past few years.
“When we go and talk to investors about funding new schemes, that’s definitely still high on the list for them,” Camp said.
Once that comes back, supply has the potential to increase quite quickly, so schemes being delivered between 2032 and 2035 might face stiff competition, he added — the City market in particular is notorious for swinging between undersupply and oversupply.
But until then, the prospects look good.
“We’ve got this incredible situation at the moment,” Binns said. “We’re only forecasting that that is going to become more acute, the combination of supply crunch and demand for best-in-class space.”