Victoria is a curious place. It boasts the busiest station on the Tube, yet is seen as being a bit peripheral. It is probable — though difficult to prove — that it boasts the largest average building size outside the City, but it is not seen, these days, as a major corporate headquarters location. It is seen as the centre for government, and those who want to lobby it, yet over the years it has generated some of the most iconic deals London has witnessed.
Consider this: before Canary Wharf was even thought of, people spotted that there was something amiss in the City because Salomon Brothers moved to Victoria, along with Nikko Securities. Victoria has done its bit for the property market’s imagination. With Salomon shaping up to ship out to Canary Wharf now seems as good a time as any to see what the immediate and longer-term future holds.
The first thing to consider is the tenant base. DTZ Debenham Tie Leung has been researching locational loyalty. Of 127 deals of over 10,000 sq ft monitored by the firm since 1985, 70% have were previously in Victoria. Insofar as this is a measure of loyalty it is Victoria tenants are marginally more loyal than those of the core West End, where 68% of 431 movers in this size band were previously based there.
DTZ will soon publish detailed research on locational loyalty in London, but two strong illustrations of loyalty come from PA Consulting’s purchase of its headquarters at 123 Buckingham Palace Road — out-bidding institutional investors — and law firm Bircham & Co leasing 2,986 sq m (32,152 sq ft) at Teesland’s 50-64 Broadway. Such deals suggest that you don’t have to go too far to find demand for space. Teesland’s scheme is tipped to have been sold to NPI for around �40m, suggesting the tenant base is strong enough to attract institutional investment. Knight Frank is marketing the vacant space. Meanwhile, PA is expected to expand into space vacated by advertising agency DMBB.
There is certainly enough demand to have pushed up rents. Data from Cluttons suggests they are approach �50 per sq ft. Clutton’s Ian Noble believes that Victoria may be in s similar position to the mid-1980s. "London is an international City and Victoria stands to gain," he says, noting that Victoria rents — traditionally at a discount to other markets are very close to City levels. These are hardly signs of a backwater.
But where is the new supply going to come from?
One thing that looks unlikely to be happening in the near future is Victoria Interchange, the redevelopment of Victoria bus station in front of the railway station. Last year London Transport discretely bought out its joint venture partner Greycoat. Chris Strickland, Greycoat’s development director explains that the scheme — which had been on the drawing board for 12 years — was overtaken by London Underground’s needs. As originally envisaged it involved improvements to the Circle and District Line, but the capacity of Victoria Line is now the key problem. "This couldn’t be solved with our development," says Strickland.
London Transport could not support the scheme and Greycoat’s priorities lay elsewhere. But with London Transport awaiting the outcome of the public-private partnership process it is hard to see a new scheme happening in the medium term. A source close to London Transport said that rents of �50 per sq ft would make a scheme economically viable, but it is hard to see a viable project reach fruition.
That leaves just two large proposals, Land Securities Stag Place phase two and HROs Victoria Plaza.
LandSec has applied to build the second phase of the Stag Estate regeneration. On a site bounded by Victoria Street, Palace Street and Bressenden Place, the developer's proposals include two office buildings totalling 46,920 sq m (505,000 sq ft) and 12,450 sq m (134,000 sq ft) of retail and restaurants.
Howard Ronson's HRO International will manage the refurbishment of Victoria Plaza when Salomon Smith Barney moves out in collaboration with German open-ended fund CGI. Neither of the schemes is for the short term however, but does the lack of true large scale development have to be a problem? John Milton of dohertybaines says, "Most of the action is in the up to 50,000 sq ft market". Knight Franks Tim Robinson observes that 66% of central London’s 553,000 sq m of active or potential demand is accounted for by just 22 enquiries, showing how skewed aggregate figures can be by a small number of large enquiries. The 40-80,000 sq ft range is the heart of the market, he says. DE&J Levy’s Ken Cohen believes that the whole of the West End middle market has been squeezed. In Victoria the problem has aggravated a by taking huge chunks of space, especially since Labour came to power. "For the foreseeable future the market will remain tight. Demand, he says, is reasonable, but the supply is not there.
But if supply becomes available, how sustainable would the Victoria market be? Despite deals involving Yahoo.co.uk and Lastminute.com, it is not just the troubles afflicting Boo.com that suggests this could be a new source of demand. "The dotcoms have gone where the buildings are," says DE&J Levy’s Paul Gold. Locational loyalty is unlikely to be a strong point.
This may bring us back to Land Securities scheme, long term as it is. Victoria lacks a cultural core. The City has Leadenhall Market and Bow Lane; the West End has Soho. Canary Wharf the major schemes at Paddington are striving to create places to hang out. Victoria has no equivalent. That 12,450 sq m (134,000 sq ft) of retail and restaurants could be more significant than at first seems. Cohen says "If you can create a special area, you never suffer as much when the market falls."
As Salomon Smith Barney draws a line under its tenure in Victoria, perhaps it is time to consider creating something special, so that the next outsider to move decides to stay for life.
© 2000 Ian Cundell