Number 22 Bishopsgate has not had easy beginnings. Work on the tallest and largest office block in the City of London started after the Brexit vote and was due to finish between March and June this year. Then came coronavirus, slowing construction to a crawl. The number of workers on site plummeted from 1,200 to 25.
The 62-storey tower with 1.4m square feet of space is still scheduled to open later this year. But with a flurry of projects stopped in their tracks, a crash in demand for office space and financial pain for developers, there is every chance the building, which dwarfs its neighbours the Cheesegrater and the Gherkin, could stand as a monument to the market peak for some time to come.
22 Bishopsgate “probably marks a high-water mark for skyscrapers. People won’t be able to justify the cost in doing it and I think there will be tenant concern about being in towers, particularly of this scale,” said Chris Lewis, a director at DeVono Cresa, which advises office tenants.
The building has space for 12,000 workers from tenants including big name insurers, law firms and the US stock exchange Nasdaq. It has a huge hall, innovation hubs, a “wellbeing retreat” and a climbing wall.
About 60 per cent is already leased, according to Harry Badham, UK head of development at AXA IM Real Assets, 22 Bishopsgate’s owner. That leaves more than 500,000 sq ft as yet unclaimed.
Mr Badham is confident it will be filled. “We are still seeing an active market at the moment for people who need to move in a year’s time. If you’re looking for 100,000 sq ft, there are only a handful of options for you in London,” he said.
But the outlook is far from clear. At the end of March, fully 100 per cent of developers were pessimistic about the outlook for the London leasing market, according to a survey by Deloitte.
Leasing activity has since plummeted. The 301,000 sq ft taken in the eight weeks since the end of March is 88 per cent less than in the same period a year ago, according to DeVono Cresa. And almost a third of that space was taken in one deal at 22 Bishopsgate. There is no reason to expect a rapid rebound, DeVono Cresa said.
Developers that can will put projects on hold until there is more clarity about the market. About half of those surveyed by Deloitte plan to reduce their development pipeline.
For some developers it is too late to put on the brakes. Encouraged by low vacancy rates — about 5 per cent — and the decisive general election result last year, construction had returned to pre-Brexit levels.
From October 2019 to March 2020, work began on 5m sq ft of office space in London, according to Deloitte. The high figure reflected optimism at the start of the year, said Bo Glowacz, one of the authors of the Deloitte report. “Now that’s gone.”
A recession, which the government has warned will be “severe”, will reduce the willingness and the ability of companies to spend on offices. Some are cutting costs by reducing the space they use or withdrawing completely.
“We’ve decided we don’t need the central office at all,” said Mike Hampson, chief executive of Bishopsgate Financial, a small financial consultancy. This will cut fixed costs by a quarter, he said.
The tech companies that have made up a significant portion of demand — often for the shared-office “co-working” spaces provided by the likes of WeWork — are also under pressure.
“The lockdown came in and they suddenly found out whether they could survive this or not,” said Andrew Roughan, managing director of Plexal, a co-working business in east London. “If they don’t have a funding runway, they won’t need property . . . They’ll be focused on survival.”
Occupancy rates for shared offices might fall 20 to 30 per cent, he said.
The companies that own London’s office buildings, including Great Portland Estates and Land Securities, have reported that occupancy levels have fallen as low as 10 per cent in recent weeks. Property company Colliers estimates 60 per cent of desks will remain unoccupied while social distancing is in place.
Some expect patterns of office use to change permanently. “We will have a psychological hangover from what is set to be an entire year of social distancing,” said Jack Pringle, regional director of Europe, the Middle East and Africa at Perkins and Will, an architecture and design firm.
“The days of high-density offices with people sitting around doing what they can do at home is probably over,” he said. Businesses will be asking themselves: “What do we want this office for?”