Occupiers looking for new office space in London are putting proximity to Elizabeth Line stations on their list of requirements.
Meanwhile, landlords are enjoying rental increases attributable to the €22 bn infrastructure project.
Just over two years since the opening of Crossrail (now known as the Elizabeth Line or, colloquially, Lizzie Line), it seems occupiers are really taking it seriously. Peter Ferrari, founder and CEO of AshbyCapital, which co-developed The JJ Mack Building just 150 metres from one of the central London stations – Farringdon – says his company has been leasing up to 200,000 sq ft (18,00 m2) project for the last 12-18 months.
“When we go through the inquiries, we always ask what the search criteria are. The Number One on the list is Crossrail. They want top quality space close to Crossrail and they are prepared to pay for it. Crossrail has been fantastic. It has enhances some areas and transformed others such as ours. What tenants are looking for is a great building, with sustainability but also connectivity. The journey has to be easy. The other think you need is amenities around the building, which Farringdon is great for.
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RENTAL GROWTH EVIDENCE
The bottom line is property owners are seeing rental growth at office buildings around the Elizabeth Line stations in central London, which those in the industry attribute to the new stations to some extent. The major stops west-to-east are Paddington. Bond Street, Tottenham Court Road, Farringdon, Liverpool Street, Whitechapel, and Canary Wharf. Some of these were already established office locations quite well served by transport. While it is difficult to assign rental uplifts totally to the Crossrail effect, there are reports that have attempted to measure it.
Last year, Knight Frank and the London Property Alliance published a 70-page report called ‘The Crossrail Effect: How the Elizabeth Line is transforming the capital’. It contains details of occupancy and rental increase around the stations since the line opened in May 2022. The report stated that a decade ago, annual office take-up in Elizabeth Line locations represented 43% of all lettings in London. In Q1 2023, that share rose to 51%. Levels of take-up in those locations stood at 6.3 million ft2 – above the 10-year annual trend of 5.6 million ft 2. It also reveals that office take-up in Elizabeth Line locations was 12% above trend in Q1 2023, against 11% below trend for non-Elizabeth line business districts. This, it suggests, was due to fresh occupier demand being driven to Paddington, Bond Street and Farringdon.
The report highlights further notes that the Elizabeth Line has had a more pronounced positive impact in the West End than in the City. In Farringdon, where the improvement to transport infrastructure includes the Thameslink Programme, prime rents have grown by 46.6% in nominal terms over the last 10 years.
The limited under-construction development pipeline in Elizabeth Line sub-markets is expected to compound the existing shortage of prime space. By 2026, a further 6.4 million ft 2 of office space will be completed, of which 40% has already been pre-let. This is the 10 percentage points above the average across London.
Of the sub-markets, the lowest rental growth has been experienced in the Marylebone office district near Bond Street station, where prime rents have grown by 14%.
NEW OFFICE SUB-MARKETS
Shabab Qadar of Knight Frank who co-authored the report, say: ‘What we found in the report was the Crossrail has undoubtedly had an impact. It has been transformative not just in terms of passenger numbers but also in terms of development of industry-leading offices – and not just in the West End and City core. It has raised the attraction of some new fringe office sub-markets where the Elizabeth Line has been developed.’
He adds: ‘It has led to much higher levels of lettings activity in these locations, and the levels of rents that have been achieved are stellar’.
In the immediate vicinity of Liverpool Street and Bond Street, rents have gone up over the past two years by 17% in the City and 20% in the West End. But it doesn’t stop there. ‘We have seen very similar levels of lettings activity at Tottenham Court Road, Paddington and Farringdon as new occupiers move to these locations,’ notes Qadar. ‘We have seen occupiers from outside London move into these locations. At the same time, we have seen partnerships evolve to improve the public realm, which has created these vibrant business districts.’
GSK’S MOVE
A good example of occupiers making a move close to an Elizabeth Line station is GSK. In July this year, after two decades in the west London suburb of Brentford, the pharma giant opening its new global HQ for up to 3,000 hybrid workers at The Earnshaw building on New Oxford Street just metres from the new Tottenham Court Road Elizabeth Line station. It made the decision to relocate in 2022. The Earnshaw has been developed by Royal London Asset Management as a 150,000 ft2 flagship office scheme over the 12 floors with retail on the ground floor.
The move was highlighted in the Crossrail report by Knight Frank and the London Property Alliance as a key example of large occupiers being attracted to certain Crossrail locations – in this case Tottenham Court Road. Says Qadar: ‘I don’t think we have seen the effect on locations outside Central London or at least not to the same extent. GSK, for example, was outside of Central London before The Earnshaw was built.
The development of some of these newer places around Tottenham Court Road and around Paddington and Farringdon has provided attractive rental entry points for a number of these occupiers who have been in sort of ageing building and who want to come back to more sustainable offices that cater for employee wellbeing that we’ve got in some of these newer sub-markets at an attractive and affordable entry point. I think that the impact has been much more meaningful in London than it has been outside of London.’
Crossrail gained approval in 2007. Construction began two years later. The line goes much further east and west than central London. It stretches 100km either side of Paddington to Reading in the west and Shenfield in the east, and has stops for Heathrow Airport, but also covers London outer locations such as Acton Main Line, Woolwich and Stratford.
RESIDENTAL VALUES
It is not only office rents that have been boosted. Higher residential values have been attributed to Crossrail too. CBRE have recently released findings after analysing house prices and rents for homes within an 800-metre radius of an Elizabeth Line station. Across all its London stations (excluding Zone 1 because demand there has always been strong), average house prices grew by 80% from 2008 (when the train line was confirmed) to 2023, compared to 74% in their respective boroughs – reflecting a 6% uplift for homes close to the stations on a new line.
Of the 33,000 new homes built over the time frame, just over a fifth have been Build-to-Rent (BTR). This equates to 7,000 new homes delivered around the Elizabeth Line stations, accounting for 16% of London’s total BTR supply over this period. The bulk of these homes have been built around Canary Wharf, Stratford and Woolwich stations, where a total of 14,000 homes have been delivered, and large-scale regeneration has also taken place.
Scott Cabot, head of UK residential research at CBRE, said: ‘Our research shows how major infrastructure projects can have a positive influence on our housing market and local communities. They make these areas located on the line more attractive to live in. This is largely because of the better transport connectivity, but in many case, it will also have triggered wider regeneration in the area, attractive new businesses, retail and leisure, and enhanced amenities.’
OCCUPIER DEMANDS
Coming back to offices, CBRE says it does not have data to give publicly regarding the effects on office rents and values due to the new line. However, Simon Brown, head of UK office research at CBRE, says: ‘I think the big change we have seen since the Crossrail opened is we’re starting to see occupiers having requirements for offices on the route of Crossrail – that is different.’
He adds: ‘Requirements will specifically name the Elizabeth Line. In general terms, what the granular data about headline prime rents tells us is that those sub-markets such as Canary Wharf and Paddington and Mayfair, they have just had their appeal massively enhanced.’
He points out that a lot of central London Crossrail as such, as that is already an attractive office market, though Crossrail may have made it (marginally) more attractive. But if one examines areas such as Farringdon and Tottenham Court Road, they have seen rental growth and could be seen as the two main beneficiaries of Crossrail.’
AshbyCapital’s Ferrari says rents have certainly climbed around the company’s developments. Ashby completed The Avenue near Tottenham Court Road five years ago. It set rents upon completion way ahead of what had been previously achieved partly in anticipation of Crossrail.
“But now we are five years on and rents are a lot more and I think a lot of that is to do with Crossrail opening up. Firstly, there was an uplift as we sort of “bought the future” and then there was a double bounce once people could tangibly understand how much easier it made it to travel across London. The same could be said for One Bartholomew near Farringdon, and actually, not just for buildings right by a Crossrail station, but also at places a few stops away on the London Underground.
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For example, AshbyCapital has developed The Kensington Building at Kensington High Street, which is three stops on the London Underground – for 5 minutes – from Paddington Station. Crossrail has provided a faster way from Paddington to Farringdon, cutting overall journey times for people using that stop.
“Crossrail has changed the geography of London and had an impact perhaps wider than people ever imagined.
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CREATING VALUE
Alex Jan, chief economic advisor at the London Property Alliance and chair of the Central District Alliance, was involved in a pre-impact study of the opening of the Crossrail in his previous role as chief economist for engineering firm Arup.
He believes that when the project was announced, there was an impact on the rental values within 500 metres of the central London stations of about 3%. This was called the ‘announcement effect’, and sophisticated investors responded.
If the UK government is really interested in growth, Jan says, projects such as Crossrail can be seen as an interesting way of creating economic value, which can then be taxed.
Crossrail overshot its budget – it cost £18.8 bn (€22 bn), exceeding the initial costing by about £4 bn – and it was three-and-a-half years late, opening with a limited service in May 2022 after 10 years of work. Nearly 70% of the cost was paid for by Londoners and 30% by London businesses, so Jan argues it is right that the capital sees a significant benefit.
INTERGRATED SYSTEMS
In 2020, the Covid pandemic battered London. The London Underground system suffered as people stayed at home and many continued o work from home at the end of the pandemic. Yet Transport for London (TFL) figures published in December 2020 showed the Elizabeth Line had become the busiest train line in the country carrying over 44 million passengers within just over six months of opening. In total it connects 41 stations.
Jan says: ‘Crossrail’s performance has been remarkably good in that context, and London’s metro system in performing well compared to, say, New York 2019 benchmarks. London is looking pretty great compared to some other global cities. The success of Crossrail – yes, it is a function of getting the route right and it is pleasant to use but crucially, it is also the way it is integrated into the other systems such as the metro.’
Not all areas have seen the same bounce. For example, Chancery Lane and Russell Square have seen reductions In passenger numbers, though that was arguably needed given overcrowding.
Jan says an important part of Crossrail’s business case was that it should have positive effects beyond transport. Indeed, the move by GSK to Tottenham Court Road is a good example, with the area seeing a greater special concentration of professional services, technology, media, telecoms, knowledge-based industries and therefore more access to skills in the area. ‘You get this extra benefit because of their proximity to the likes of GSK.’ Ground-level retail property has benefitted from Crossrail, again in contrast to the trend in global cities such as New York, he adds.
What the adviser would like to see is planning authorities such as Westminster having systems that ‘respond more imaginatively to such initiatives, otherwise they might deter major planning applications.’