The Great City Of London Office Repurposing Starts To Pick Up Pace

The Square Mile, London's largest office market, is arguably the district of the capital most profoundly transformed by the pandemic. The deep-seated effect of hybrid work has seen older office stock within the City of London’s jurisdiction become increasingly unwanted, untenable and unsustainable, environmentally and economically.

But rather than double down on attempting to update those offices, the City of London Corporation has embraced an alternative vision that includes adapting to changes in demand, making it easier for investors and developers to propose change of use, notably in the hotel, educational and cultural sectors. 

Those new priorities have attracted a fresh wave of investors, from budget hotel specialist Premier Inn to purpose-built student accommodation and mixed-use investors, and the conversion of older office stock is starting to accelerate. Last year, major applications for residential and hotel schemes accounted for around 23% of the total, up from just 8% in 2021, according to the City of London, and retrofits across all asset classes went above 50% for the first time.

Offices will always be king in the district that is London's financial heartbeat, and repurposing older stock to alternative uses is complex and risky. But right now, turning defunct workspace into other uses is where the money is heading in the City.

“There is undoubtedly some redundant and out-of-date office space, which doesn’t have the floor plates, would be too costly to refurbish and would be difficult to achieve ESG requirements, that won’t have another life as offices,” Kauffmans co-founder and Director Howard Kauffman said.

“Because the local authority is much more open, it gives investors far more confidence about looking for opportunities in the City. Of course, it has to be appropriate — it’s not a free-for-all. The City wants alternative uses, but it doesn’t want washing lines on prime streets,” he said, pointing to the fact that the City has traditionally shied away from approving any kind of residential use in its central areas, fearing antagonism between residents and the commercial occupiers that are still the district's lifeblood.

There has been a recent flurry of high-profile retrofit project approvals, including 45 Beech Street, approved as a co-living development. The building is slated for partial demolition and then extension to deliver 174 private rental co-living units.

To be developed by Hub and impact investor Bridges Fund Management, the scheme will become the area’s first co-living development, approved in part because it is surrounded by residential buildings and adjacent to Bryer Court and the Barbican Estate. The companies have also acquired 150 Minories in Aldgate for £39M, with plans to convert the building into a 300-home development.

Meanwhile, Hardington Capital acquired the 13K SF St Mary Abchurch House on Cannon Street from GMS Estates in October 2023 and recently applied for planning permission for a change of use of the first to fifth floors into 20 serviced apartments. 

“What we have is a number of Grade B offices that are no longer fit for purpose, even with deep retrofits, and a change in the ecosystem that needs to go around offices,” City of London Corporation Planning and Transportation Committee Chair Shravan Joshi said. “That’s why our strategy has focused on hotels, educational facilities and cultural attractions where we can fast-track planning, saving developers time and money.”

Joshi estimated the number of hotel beds available in the City at around 7,500, but by 2040, that should increase to around 9,000. Meanwhile, a number of non-London universities have opened sites in the City, and student accommodation projects have been approved to provide more living space.

“We have these new university buildings, plus the neighbouring London institutions and students bring a fresh dynamic to the area,” Joshi said. “The City already has a lot of young people working here, so the influx of students feels natural and, of course, helps boost all the retail and leisure offers. Sandwich shops, cafés and bars can’t sustain their incomes on a three- or four-day working week alone.”

The local authority is also drawing up plans for how to best encourage more cultural facilities to make the City their home.

“We would like a full spectrum of cultural attractions, but we need to decide whether we want to curate that or let it develop organically,” Joshi said. “I think in terms of London, the City has already been ahead of the curve on retrofitting.”

Much of the early activity has focused on hotels. The Whitbread-owned budget hotel group Premier Inn acquired the freehold of the 90K SF office, retail and restaurant building New London House at 6 London Street from clients of Orchard Street Investment Management for £56.5M. It comprises a podium and tower structure adjacent to Fenchurch Street, and Whitbread wants to extend this into a hotel-led, mixed-use development.

Whitbread has also converted former office buildings into Premier Inn and Hub by Premier Inn hotels, with two developments in the City of London at Farringdon and Moorgate.

“We are seeing a structural shift in the London office market presenting opportunities to acquire office buildings that are no longer fit for occupier and investor purposes and to reposition and refurbish them,” Whitbread Managing Director for Property and International Mark Anderson said in a statement.

One of the earliest hotel conversions to be approved was at 15 Old Bailey, which opened its doors in August after a £34M transformation as the 111-room Hyde London City in a development by OB Capital and private equity firm Boscalt Hospitality. OB Capital bought the building in 2014.

“It’s Grade II, and the facade had been retained, but obviously a hotel is a very different beast from an office, so there was a lot of M&E to introduce, mindful of its listed status,” Studio Moren associate architect Ed Murray said. “It had previously been open-floor with smaller serviced offices, and there were also additional requirements like a firefighting core, while 10% of the rooms were to be accessible.”

Despite a long tenure as an office, the building started life as a hotel, and Murray said that while the building sat slightly on its own, the ambition was to make the restaurant and bar offer a destination and push the boundaries of what could be delivered in the City.

“For hospitality, the City offers a daytime opportunity around business, but there is also a desire to capture the growing nighttime economy and increasing weekend activity,” he said. “Historically, it’s an office district, but with more companies operating hybrid work, there is greater use of the facilities at hotels for both stays if people have relocated out of London and for meeting spaces.”

More such projects are in the offing. LaSalle Investment Management has put 29 Clements Lane, EC4, up for sale through Savills for £30M, pitching it to buyers as a possible hotel conversion.

Meanwhile, developer Dominus is working on several conversions. One, student accommodation at 61-65 Holborn Viaduct, has been completed. It has also secured planning for a new 237-room hotel designed by Studio Moren in a former office building at 5-10 Great Tower Street, formerly used as an office.

“On walking into Great Tower Street, it didn’t feel like an office. It felt like a hotel, so it seemed ripe for conversion,” Dominus Real Estate Planning Director Ian Fergusson said. “We acquired it in the summer of 2023, and we went to the planning process very quickly. The stars were aligned on this one. We tend to work with Marriot and Hilton, so typically the conversions are aimed at that level.”

However, Fergusson warned that conversions are often complex, and as a result, investors and developers need to assess each building on its own merits.

“With a number of older buildings in the City, plus increasingly stringent EPC rating requirements, some of these are clearly redundant as offices, and we would expect to see more opportunities,” he added. “The key thing is to establish if the block lends well to conversion and to be sure it’s in the right location for its new use, which is very specific to the audience you are targeting.”

Dominus is also involved in the PBSA sector, and Fergusson said the company sees strong demand for student accommodation, with the City providing a desirable location for students and several academic institutions. At 65 Crutched Friars, it is developing 782 student homes, plus a public roof terrace alongside a new permanent home for the 30K SF Migration Museum.

“In addition, it is a requirement that 35% of rooms are deemed affordable, so rates are capped at £193 per week. For our scheme, 50% of the room have been allocated to identified universities,” he said.

The company is also in the planning process for 65 Fleet Street, which includes what is claimed to be London’s oldest Irish pub and a crypt. It is looking to convert the building to student accommodation, an educational facility for St Bride’s Charity and a retail unit, reflecting the growing diversity of repurposing schemes. 

A well-managed approach could yet act as an exemplar for urban planning. While the City’s gleaming Grade A towers may do much to define its high-rise future, other animations could yet reenergise its streets.

“Development here has far more of a focus on lifestyle, with people coming to work and staying to play,” Kauffmans co-founder and Director Marsha Rabinovich said. “There is every opportunity for the City of London to become a great global example of how this transition from an office-led area to a dynamic mixed-use environment can be achieved successfully.”