{"id":538878,"date":"2025-10-31T02:13:12","date_gmt":"2025-10-31T02:13:12","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/538878\/"},"modified":"2025-10-31T02:13:12","modified_gmt":"2025-10-31T02:13:12","slug":"london-office-development-pays-off-if-you-can-build","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/538878\/","title":{"rendered":"London Office Development Pays Off \u2014 If You Can Build"},"content":{"rendered":"

When Cheyne Capital<\/a> and Stanhope<\/a> bought the site formerly known as Red Lion Court from Landsec<\/a> 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.\u00a0<\/p>\n

The deal highlights the paradox of office development right now. It\u2019s incredibly difficult. But get it built and get it right, and it has the potential to be highly profitable.\u00a0<\/p>\n

\u201cFor the best assets in the best locations, the occupational side is as strong in London as at any time in the past 40 years,\u201d Stanhope CEO David Camp told Bisnow.<\/p>\n

\"Placeholder\"\/<\/p>\n

\n Courtesy of Stanhope\n <\/p>\n

\n Stanhope and Cheyne’s Row One scheme\n <\/p>\n

Camp and Stanhope Head of Investment Joe Binns said\u00a0the challenges facing London office development are what make the sector so attractive, but there is a\u00a0final piece of the puzzle that needs to fall into place to really unlock the market.\u00a0<\/p>\n

Row One, as the scheme\u00a0has been renamed, is an 11-storey, 235K SF office development\u00a0on a 1.2-acre site on the South Bank of the Thames next to Southwark Bridge. It has an end value of \u00a3450M.<\/p>\n

Cheyne and Stanhope bought the tract\u00a0from 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.\u00a0<\/p>\n

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\u00a0why the duo have teamed up again.\u00a0<\/p>\n

Rents at 76 Southbank are nearing \u00a390 per SF, giving the pair pricing confidence.<\/p>\n

Row One would have to do even better. Average rents of around \u00a3100 per SF would be needed to make the project viable, Binns said. While construction and labour cost inflation are\u00a0more predictable and less elevated than they have\u00a0been for the past three years, those costs remain high, as is the cost of capital from both equity and debt providers.\u00a0<\/p>\n

\u201cThe active money for value-add development is private equity, high-risk, high-return money because of the point we’re at in the cycle,\u201d Binns said. \u201cAnd as a consequence, development as a business plan doesn’t typically work for a lot of that kind of money.\u201d<\/p>\n

\"Placeholder\"\/<\/p>\n

\n Courtesy of Stanhope\n <\/p>\n

\n Stanhope’s David Camp\n <\/p>\n

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.\u00a0<\/p>\n

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.<\/p>\n

The new schemes that have started have been backed by institutions like AXA<\/a> or Aviva<\/a> on sites they have owned for several years, and that kind of capital has not been buying new projects.\u00a0<\/p>\n

Row One is\u00a0ready to start on-site immediately\u00a0since Landsec already\u00a0undertook much of the preparatory works. Development is expected to begin\u00a0in early 2026 and take two years, a time frame that a private equity firm like Cheyne can get behind, but a rare situation.\u00a0<\/p>\n

The partners said they are confident they can hit\u00a0the 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.\u00a0<\/p>\n

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.\u00a0<\/p>\n

That has caused rents to spike \u2014 up 31% on the South Bank in the past five years, 39% in the City core and 73% in Mayfair,\u00a0according to Devono, albeit they were flat in the second quarter of this year.\u00a0<\/p>\n

Recent lettings showing the kind of rents that can be achieved include deals at Edge and Goldman Sachs<\/a>\u2019 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 \u00a3130 per SF.\u00a0<\/p>\n

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 \u2014 particularly U.S. firms.\u00a0<\/p>\n

\"Placeholder\"\/<\/p>\n

\n Courtesy of Stanhope\n <\/p>\n

\n Stanhope’s Joe Binns\n <\/p>\n

\u201cThe world that we operate in, very prime central London, there are always people making money in any environment,\u201d Binns said. \u201cAnd 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.\u201d<\/p>\n

Firms that have announced major expansions in London like Jane Street or Citadel are not the\u00a0big 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.\u00a0<\/p>\n

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 \u00a3300M-plus office at a yield of 5% or less.\u00a0<\/p>\n

Deals like Modon\u2019s 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.\u00a0<\/p>\n

\u201cWhen we go and talk to investors about funding new schemes, that\u2019s definitely still high on the list for them,\u201d Camp said.\u00a0<\/p>\n

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 \u2014 the City market in particular is notorious for swinging between undersupply and oversupply.\u00a0<\/p>\n

But until then, the prospects look good.\u00a0<\/p>\n

\u201cWe’ve got this incredible situation at the moment,\u201d Binns said. \u201cWe’re only forecasting that that is going to become more acute, the combination of supply crunch and demand for best-in-class space.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"When Cheyne Capital and Stanhope bought the site formerly known as Red Lion Court from Landsec last month,…\n","protected":false},"author":2,"featured_media":538879,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7757],"tags":[748,173828,393,4884,81103,257,173829,24662,16,15],"class_list":{"0":"post-538878","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-london","8":"tag-britain","9":"tag-cheyne-capital","10":"tag-england","11":"tag-great-britain","12":"tag-landsec","13":"tag-london","14":"tag-london-office-development","15":"tag-stanhope","16":"tag-uk","17":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115466365027824470","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/538878","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=538878"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/538878\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/538879"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=538878"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=538878"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=538878"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}