£500M Mothballed Scheme Next To Buckingham Palace Highlights End Of An Era For Luxury London Residential

On a clear, sunny July day, tourists buzzed happily around the western edge of Buckingham Palace, snapping photos, queuing for tour buses and just taking in the vibe at one of London’s most famous landmarks.

Few paid much attention to the building just 20 yards across the road from the central London home to King Charles and the British monarchy.

Large, imposing, taking up half a city block, the windows of the frontage opposite the palace would have views into the royal gardens — if those windows weren’t wrapped in construction tarpaulin, with no sign of life or activity within, as they have been for more than a year now.

One Palace Street was supposed to be one of London’s most expensive luxury residential developments. The 300K SF project was valued at more than £600M, and its 72 apartments had been estimated to sell at an average of nearly £4K per SF.

With the fanciest neighbours imaginable, a prime location and upmarket hotel brand St Regis providing services to residents, the chances of success seemed high when the site was bought and the project unveiled in 2013.

But prior construction delays were only exacerbated by the pandemic. Five years after the targeted 2018 finish date, in April 2023, the scheme was not complete and a £350M development loan wasn’t paid. That’s when partners from FRP were appointed administrators to the company that owns the development, the equivalent to Chapter 11 bankruptcy.

More than a year later, no new developer has been brought in by the administrators, and the project remains on ice.

The fate of One Palace Street tells a wider story about the London luxury residential market. A decade ago, when the development was conceived, that market was at its zenith, with land prices at record highs and buyers flooding from around the world to buy into a city that was confident in its global status. 

Today, the pipeline of big luxury schemes has dwindled by 70%, and it is likely to shrink further in the coming years. London planning authorities have changed the rules on building large apartments, and the super-rich have headed to different parts of the world.

Far from being a one-off, One Palace Street symbolises something like the end of an era for London. 

“If someone turns up with £10M to £15M to spend, we can show them everything they might want to buy in London in two or three days,” Savills Head of London Residential Development Ed Lewis said. “In New York, it would take them two to three weeks. In Dubai, it would be two to three months. They’re surprised and disappointed there’s not much to see.”

‘Irrational Exuberance’

The building that today houses One Palace Street was built in 1860 and was once home to one of London’s first five-star establishments, the Palace Hotel.

The site was acquired by Abu Dhabi Financial Group for £310M in 2013, before ADFG merged with Dubai-based SHUAA Capital in 2019. The scheme was being developed by Northacre, a luxury residential developer also owned by SHUAA and ADFG.

The 72 apartments range from 675 SF to 5,400 SF, with 14 having views into Buckingham Palace gardens. Amenities were set to include valet parking, a private garden, a library, a cinema, meeting room, and a spa and wellness centre that includes a 20-metre swimming pool and gym. 

Completion of the scheme has been delayed several times. It was initially scheduled to deliver in 2018, Northacre’s former CEO said in a 2015 interview, but that timeline slipped. The project was further delayed by the onset of the pandemic.

The scheme was bought close to the peak of London land prices, data from Knight Frank shows, with prices dipping by more than 15% since 2014. And while average London house prices have risen by more than 50% in that period, prime central London prices have essentially remained flat, according to LonRes data. 

“There’s always been a kind of irrational exuberance built into the land market. You have to pay more than the competition and squeeze your expectations of where selling prices will go if you’re going to win the bid,” said Yolande Barnes, chair of University College London's Bartlett Real Estate Institute.

Brexit, the pandemic, a shift from apartments to larger homes and the fact that there are only so many super-rich people in the world to buy expensive London homes are all factors in a complex matrix of reasons prime central London prices have flatlined, she said. 

One Palace Street is owned by a Jersey-based special-purpose vehicle called Palace Revive Development. Companies House documents show that the ultimate beneficial owner is Abdulhamid Mohammed Saeed Al Ahmadi, a former governor of the Central Bank of the United Arab Emirates, by dint of him owning more than 25% of the company’s shares.

As a Jersey-based company, Palace Revive is not required to file publicly available accounts. But in 2019, the company issued bonds that were listed on The International Stock Exchange based in the Channel Islands, offering an insight into its finances.

The accounts for the year to December 2019 say Savills had undertaken a “Red Book” valuation that gave the scheme a gross development value of £512M, a price of £3,273 per SF. The company’s management undertook its own valuation and estimated a GDV of £612M, or £3,947 per SF. In the accounts, the scheme was held at a carrying value of £412M.

At the end of 2019, Palace Revive had £353M of debt — acquisition and development facilities of £288M owed to First Abu Dhabi Bank and £65M in bonds listed on The International Stock Exchange, which had been bought by parties related to the company’s owners. The loans from First Abu Dhabi Bank had been scheduled to mature in December 2020, but they were extended to December 2021, the accounts say.

In a December 2020 interview with the UAE's The National newspaper, an executive director at Northacre said 60% of the homes at One Palace Street had been sold. But the pandemic slowed that pace, with international buyers not able to travel to London.

As of December 2019, 36 of the 72 apartments had sold, according to accounts for Palace Revive. Of these, 12 sold to parties related to the company, raising £34M. Another four units sold to GFH Financial, a company chaired by a Northacre shareholder, raising £31M.

When Bisnow visited the site in July, Northacre and SHUAA Capital’s names and branding had been taken off the hoardings surrounding the site, and a window display inviting potential restaurant tenants to contact the developer to ask about leasing space had been taped over. 

The frontage of the scheme facing Buckingham Palace was under wraps, as it had been when administrators were appointed a year earlier, and there was no sign of ongoing construction work. Around the corner, the modern facade and entrance to the scheme on Palace Street was complete, and the reception desk was manned by a security guard, as was the case a year earlier.

FRP declined to comment on its strategy for the scheme as administrator. SHUAA Capital and First Abu Dhabi Bank did not reply to requests for comment. 

SHUAA also owns The Broadway half a mile away in Westminster. That project is complete, comprising 258 luxury apartments and 115K SF of office and retail space. First Abu Dhabi Bank is also the lender and Northacre the developer there, accounts for the special-purpose vehicle that owns the scheme show. The site was bought for £370M in 2016.

Eastdil Secured was appointed last year to sell the office element in hopes of helping a refinancing process, but no sale has been announced. A notice to bondholders in June said bonds for the maturity had already been extended once and were likely to be extended again, but the process was taking longer than anticipated. That scheme had more than £500M of debt secured against it, accounts show.

Shrinking Pipeline

The clearest sign of change in the luxury central London residential market over the last decade is the pipeline of new top-end schemes, those in the market say. 

Ten years ago, the number of units either under construction or with planning permission with expected selling prices of £3K per SF or higher was 3,300, Knight Frank Head of Prime Central London Development Rupert des Forges said, citing the brokerage’s data.

Today, that figure is just over 1,000, and if the pace of decline continues, it could be down to 300 in a few years. 

Rising construction costs and flatlining selling prices — which may pick up now that rates have started to fall — contributed to developers no longer pushing ahead with large luxury residential schemes, he said. But the key reason is a 2021 change in planning regulations from Westminster Council prohibiting the development of new residences bigger than 200 square meters (2,153 SF) except in rare circumstances. 

Westminster Borough covers a huge swath of the highest-value residential areas of London, including Mayfair, St James’s and parts of Belgravia and Kensington. 

“That means the new-build prime market in central London is very restricted,” des Forges said. “A lot of the key sites that you would expect to be brought forward as residential have gone to other uses.”

At the beginning of the 2010s, developments like One Hyde Park created a fashion for what Savills’ Lewis called “lateral living,” large new-build apartments over one or two floors in schemes chock full of amenities for the super-rich. But despite wealthy people liking to buy big new homes, planning regulations limiting unit size make their construction nearly impossible.

The mayor of London’s guidance pushing for 35% affordable housing on new schemes also makes it harder for developers to hit returns.

Even the beleaguered office is finding favour over luxury residential.

Investor Brockton Everest spent more than five years winning planning consent to demolish Newcombe House, a 1960s office building in Notting Hill, west London, and replace it with a new scheme featuring 55 apartments. Yet in 2022, it sold the building to private equity firm Angelo Gordon, which will refurbish it and keep it as offices.

The diminishing pipeline of large, luxury, newly built homes won’t have a huge impact on London’s wider residential shortage.

“The fact that the prime market fell while the wider market increased in value shows you how the very top end of the market has become divorced from the rest of the country,” UCL’s Barnes said. 

The super-luxury building boom of 2013 and 2014 came immediately after London hosted the 2012 Olympics, the peak of London’s confidence in its status as a preeminent global city, she said. While global demand to live in London remains, city and planning authorities like Westminster or the mayor’s office are now more focused on affordability than size and scale. 

“If London finds itself back in favour, that pipeline could come back,” Knight Frank’s des Forges said, adding that cities in countries like Italy and Portugal have enacted visa regulations to woo more wealthy residents. “If the safe haven status starts to shine again, it will come back.”

As for schemes like One Palace Street, the change in planning regulations is what might ultimately see it come to good. No new homes of more than 2,100 SF being granted planning permission means those that are built become a more valuable commodity, Lewis said. 

Some new money put in to finish the scheme off, a reposting and a relaunched marketing scheme should help the remaining units find buyers.

“They may just find themselves stumbling into a better market, by luck or by design,” he said.