Private Equity Flexes Muscle in Race to Overhaul London Offices

Private equity cash has emerged as a rapidly growing force in reshaping the look of London’s offices, more than tripling its footprint over the past three years to 13% of the total, according to fresh data.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Private equity cash has emerged as a rapidly growing force in reshaping the look of London’s offices, more than tripling its footprint over the past three years to 13% of the total, according to fresh data.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.Among firms putting money into refurbishing offices in the UK capital are Blackstone Inc. and Brookfield Asset Management Ltd. Plans include ditching sheer glass facades, introducing green terraces and adding gyms. Money is also going into making sure buildings can withstand heavier rainfall and hotter summers, PE managers and consultants interviewed by Bloomberg said. The deals mark a bright spot in an otherwise difficult time for the broader private-equity market, which in 2025 was sitting on $3.8 trillion of unsold assets, according Bain & Co. But when it comes to London offices, “private equity are thinking this is a great moment in time to buy buildings that are cheaper and sell them in a few years’ time when they’re worth more again,” says Simon Glenn, head of London capital markets at Colliers. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Blackstone has been among active bidders for London office real estate in recent years, though it is yet to announce a deal. It’s now refurbishing Broadgate Quarter, near Liverpool Street station in the City of London that it originally bought in late 2015, with upgrades set to include fully electric heating and cooling as well as a fitness studio.James Rosenfeld, a managing director at Blackstone’s real estate group, says the goal is to attract “tenants who are willing to pay a premium in order to be in buildings with those characteristics.” PE firms spent £1.24 billion ($1.68 billion) on buying London offices last year, which is 13% of the total, according to Colliers. As recently as 2022, PE represented just 4% of all deals, equivalent to £540 million. At the same time, Knight Frank and the London Property Alliance estimate that the current stock of below-prime central London office buildings could be worth £262 billion if upgraded. Firms including DWS, the fund management arm of Deutsche Bank AG, Hines Interests LP, and Henderson Park Capital Partners have been looking for opportunities to buy out landlords ahead of a deadline in the early 2030s, when UK offices will have to meet much stricter energy efficiency rules. Landlords that don’t invest in upgrades stand to lose money. And as existing investors in some cases find themselves having to “sell out of obsolete buildings,” there are opportunities for PE to buy, says Christophe Kuhbier, managing director at Henderson Park.London is a “particularly attractive place” for the strategy, in large part due to its “favorable” outlook for rental growth, Kuhbier said. Investors include pension funds from the US, the Middle East and Asia, as well as sovereign wealth funds.Cushman & Wakefield, a real estate consultancy, estimates that 76% of London’s office stock is currently at risk of “obsolescence” in light of new energy efficiency regulations due to take effect in the UK in the coming years. Henderson Park’s most recent purchase is 70 Fenchurch Street, a 25-year-old building designed by the modernist architect Richard Rogers and notable for its trademark external steel girders and glass lifts. The seller was Lloyd’s Register, which moved next door. Lars Huber, head of Europe at Hines, says the real estate investor is spending “easily a couple billion a year” on a retrofit strategy in cities across Europe through a variety of funds. Those upgrades always include environmental improvements, he said. Hines recently sold a mixed-use office and retail building on Bond Street in London’s West End district, after refurbishing it to add air-source heat pumps and a roof terrace. High construction costs and the challenge of gaining planning permission for new buildings have made retrofit a compelling model, he said. The wave of office renovations underway is set to alter the look of London. Dan Scanlon, UK president of Brookfield Properties, says the glass skyscrapers that have long dominated the city’s financial district are now falling out of favor.Brookfield last year got permission to redevelop 99 Bishopsgate, in the heart of London’s financial district. Scanlon said the plan is to retain the foundations but rebuild the rest of the building, reducing the number of windows and introducing more solid walls on the building’s south-facing side in order to adapt to rising temperatures brought on by climate change. Those design changes mean there’ll be less need for air-conditioning to cool the building’s occupants during increasingly hot summers. “We’ve orientated this building so that, effectively, you’ve got a lot of solid elements on the south face of the building to protect against the sun in the heat of the day,” Scanlon said. John Davies, head of sustainability at the investor and developer Derwent London, says there’s also rising demand for “punching,” whereby a building’s outward facade is broken up to make room for features like trees, green walls, bars and terraces. “If you look at the crop of our buildings, you won’t find any solid glass facades,” he says. Frances Brown, global workplace sector lead at Cundall, an engineering consultancy, says the implication for rents is considerable.“You get to a point where you can’t lease a building out, so that can be a risk,” she said. But it’s also an opportunity, “because when you’re decarbonizing your building, you can also look at other aspects of its marketability.” That means, at a minimum, a “decent cycle store and a pleasant changing experience.” Simon Wallace, global co-head of real estate research and head of UK real estate at DWS, says the asset manager is targeting “a light refresh strategy.” That means targeting buildings that can relatively easily be updated to make them desirable.And getting rid of fossil fuels as a source of heat is key, says Hayley Turley, senior real estate asset manager at DWS. “Being fully electric, that’s something we’ve only been doing for the last three years,” she says. “It does really feel like a core expectation now.”Leasing agents representing corporate clients from the US or Asia make a shortlist of buildings that exclude all but the very highest sustainability credentials, says Anyi Hobson, an expert on ESG in the built environment and founder of SEAM Advisory, a consultancy. “Companies want security if they’re going to commit,” she said. “They want buildings that are insurable, smart, and desirable.” Paying more rent for a greener building typically also means getting one that costs less to run, Hobson added. “In the built environment, sustainability makes its own business case.”Ángel Mieites Alonso, senior director of workplace and facilities for Europe and Middle East at Veeva, says that when he was looking for a new UK outpost last year, it had to be green. “I visited 30 buildings in London, everything that was available in the market at the size we were looking for,” Mieites Alonso said. “All of them had to have very, very good environmental credentials. That was a must.”Veeva, a San Francisco-based cloud software company, ended up renting just over 12,000 square feet in a refurbished development near Marylebone station, north-west of the main City of London business district.

An Art Deco building that was once the corporate headquarters of the now-defunct retail chain Woolworths, the property was bought by Henderson Park in 2018. Inside Veeva’s new UK offices, the temperature is regulated using heat pumps and employees can even open the windows if they wish — a rare feature in London offices. —With assistance from Jack Sidders, Natasha Voase and Julius Domoney.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.