London tower lacks anchor tenant

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The Shard (left), western Europe’s tallest building, looms over the Thames and the Tower Bridge in London earlier this month. (LEFTERIS PITARAKIS / THE ASSOCIATED PRESS ARCHIVES)

LONDON -- The Shard's owners were so optimistic about rising rents in 2010, they bought out Transport for London's contract to rent about a third of the skyscraper. They have yet to find a new tenant for the 72-storey tower's offices.

Sellar Property Group and the Qatar Central Bank anticipated rents of as much as 70 pounds (C$110) a square foot, among London's highest, when the subway-system operator was paid to break its lease. Demand for prime office space in the capital has since tumbled and average rents in the nearby City of London financial district are about 55 pounds (C$87) a square foot.

The Shard, western Europe's tallest building at 310 metres, is among five new skyscraper projects that will add about 3.8 million square feet of prime space within a mile of the Bank of England. The amount of new and refurbished office space leased in London last year was the lowest in a decade amid the financial-services industry's contraction and Europe's lingering debt crisis, real estate broker Drivers Jonas Deloitte said in May.

The Renzo Piano-designed skyscraper, named for its tapering icicle shape, took 12 years of planning and construction by Irvine Sellar, chairman of the London-based developer. His company owns five per cent of the Shard, a mix of offices, shops, apartments and a Shangri-La hotel. The Qatar Central Bank owns 95 per cent after buying into the project in 2009.

Sellar, 73, predicted the entire tower will be leased by the end of 2014.

"We are negotiating with various office occupiers for space well in excess of 100,000 square feet," he said June 29.

Construction began in March 2009 as London's property market started to bounce back from the global financial crisis. After buying out Transport for London, Sellar predicted the Shard's completion would coincide with a shortage of prime office space in the city and rising lease rates.

Central London office rents have risen about 10 per cent from that time through the first three months of this year. They remain 15 per cent below their peak in 2008, according to data compiled by Investment Property Databank. Rents for the best space in the City of London financial district are about 55 pounds a square foot and about 95 pounds (C$150) in the West End, Chicago-based broker Jones Lang LaSalle said in March.

Central London's office vacancy rate fell to 5.4 per cent from 5.8 per cent through the first quarter of this year, according to Jones Lang. Demand for even the best London space is "moribund of late," Anthony Duggan, head of research at Drivers Jonas Deloitte, wrote in May.

Britain entered its second recession in three years in the first quarter. The central bank announced a program to boost lending last month and Bank of England Governor Mervyn King wants to increase the bank's bond-purchase program to stimulate growth. Employment in London's financial-services industry may fall to its lowest level in about 16 years, the Centre for Economics & Business Research said in May.

The amount of office space newly leased in the City last year fell 44 per cent compared with 2010, according to Jones Lang. The 3.4 million square feet rented was the lowest amount since 2003; financial-services companies accounted for a fifth of the space, less than half that of the previous year.

The Shard will increase newly built and still-empty office space in London by about 15 per cent to 4.6 million square feet, according to data compiled by Drivers Jonas Deloitte. When the Place, a 17-storey building paired with the Shard, is completed next year, it will add 429,000 square feet.

The skyscraper, together with the Place, will cost about 1.5 billion pounds (C$2.36 billion) to build, Sellar said. They may be valued at 2.5 billion pounds (C$3.93) on completion, he said.

-- Bloomberg News

Republished from the Winnipeg Free Press print edition July 6, 2012 B8