In 2013, the architecture firm HOK was approached by a representative of the Greenland Group, China’s third-largest developer. “They said they were investing in London and that they’d made an offer on a parcel,” said HOK Senior Vice President Larry Malcic, who sat, on a recent afternoon, holding a cup of tea in his firm’s London office. “They’d done their homework.”
The land in question was a run-down warehouse adjacent to Canary Wharf, an area in the far eastern end of the city that grew popular in recent decades for its proximity to London’s financial center. Nothing in the area, however, would match what the Greenland Group hoped to build: an £800 million ($996.9 billion), 67-story tower, which, when completed, would be the tallest residential tower in Western Europe. “From the beginning, they saw it as a fundamentally residential tower,” Malcic said. “And they wanted to get value out of the site, so we’ve gone as tall as you can go.” (That’s a literal statement: Any higher and the tower would violate London City Airport’s flight path.)
The building, which is named the Spire, is designed as a three-petal, undulating tower. Its position on a bend of the Thames provides unparalleled views of London in all directions, and its amenities, including a 35th-story lounge with an infinity pool, an entire floor devoted to recreation rooms, and even an outdoor covered track, would place it at the (literal) top of London’s booming luxury real estate.
And then, just as the building broke ground, the U.K. voted to leave the European Union and London’s real estate market, which had already been showing signs of weakness, began to crumble.
The Greenland Group vowed to forge ahead with the building. “The UK’s vote to exit the European Union (“Brexit”) cannot be said to have had no effect on the property market in London, and we are aware that there could be some turbulence in the future," wrote Wenhao Qian, managing director of Greenland Investment Ltd., in an e-mail. "Developments of note, as well as iconic buildings, are continuing to do well. We feel that the advantages of London—its global cachet, cosmopolitanism and being a centre of world trade—bode well for a positive future for both the property market and the wider economy.”
The question, in turn, is whether Greenland's commitment represents canny long-term planning or something closer to stoicism in the face of adversity.
Hurdles And Payoffs
First, said Faisal Durrani, head of research at the broker, Cluttons, it’s important to consider the overall London housing market, Brexit or no: “We’re probably building less than half the supply of housing that the city needs on an annual basis,” he said. “We’re constructing about 40,000 to 50,000 new units a year, when we really need about 120,000.” In a vacuum, then, the Spire is adding a much needed supply of apartments (861 in total) in the face of cacophonous demand.
But that demand comes with a caveat. “Most domestic [U.K.] demand tends to seek out what we call ‘period property,’ or anything that isn’t new construction,” Durrani said. “So despite a building being brand-new and modern and packed with all sorts of amenities, it’s not a kind of place domestic buyers will aspire to live in.”
Happily for Greenland though, roughly half of all central London buyers are currently international, and many of those buyers “are coming from new-build cities,” Durrani said. “So new buildings appeal to them— they’re used to it.” More good news for the Greenland Group: A recent Cluttons survey of 127 UAE-based high-net-worth individuals listed Canary Wharf as the top neighborhood for residential investment, which Durrani said could be the result of a massive influx of investment into the neighborhood from sovereign wealth funds. Investors “have seen their government has identified a safe space, and they’re going along with it,” he explained.
Still, the recent volatility in the U.K. housing market has caused some international investors to sell (at least, attempt to sell) their London properties. "What's happened, with values softening over most of the city, is that we've seen some international buyers trying to offload their stock," Durrani said. "There's very little domestic interest in purchasing it because it's perceived to be overpriced." And, Durrani added, "it often is overpriced." If economic volatility—not to mention Britain's exit from the E.U.—continues, that could eventually further dampen international interest.
The final factor that could affect the Spire's success? Time. As the U.K.’s domestic buying base grows (and ages), there’s a good chance that they’ll come around to this new, glassy construction. “The cookie-cutter mentality hasn’t arrived yet for domestic buyers, but over time I think that’s likely to change,” Durrani said. “Purely because there aren’t enough homes to go around. It’s as simple as that.”
Planning For The Future
In the short term, the Spire can hope to attract international buyers confident in London's future as a financial center, or at least in its position as a city more stable than those in their home country. In a mid- to long-range outlook, demographic indicators imply that its buyers could come from within the U.K.
Malcic, the architect at HOK, said the building was designed with just this sort of change in mind. “We’re looking to appeal to a whole range of people,” he said. “I think it will be equally appealing to people in the home counties whose children have grown up, who don’t want to spend time cutting the grass anymore.”
Malcic said that HOK accounted for this uncertain future with malleable tech configurations (“What people need is not built-in tech anymore,” he said, “what they need is the flexibility to put in whatever technology is coming"), extra-high ceilings (“which gives a graciousness, but also a degree of flexibility,”) and such amenities as refrigerated storage lockers to stash grocery deliveries. “In the old days, you measured success by how much square feet you had," he said. "Now it’s how much convenience you have."
Construction is set to begin in early 2017, with a completion date of 2020. And while the Brexit uncertainty and U.S. elections roiling world markets make it impossible to make even a reasonably cautious prediction about the future, Durrani, the analyst, said that smart investors shouldn't try. “It’s harder than ever to time a building launch with property market cycles," he said. "Most investors in this market are in it for the long term, and the long-term picture is a lot rosier than the next three to six months."
This article was provided by Bloomberg News.
