Insights: Why businesses are looking to emerging locations like Canada Water

Both Formula One and investment bank Evercore have revealed their plans to relocate from Mayfair to Victoria. Could they be paving the way for other major players to benefit from a move out of core? We talked to leading agents Richard Howard, Executive Director at CBRE, and Alistair Brown, Head of UK Leasing at Cushman & Wakefield, to get their expert take. 

“We have recently seen certain occupiers looking and moving further afield,” explains Howard. “Which is due to lack of space and availability and development pipeline, but also just being a bit more open-minded about where they’re prepared to base their business.”

Companies are still concerned with their employees’ commutes and how that impacts their ability to attract and retain the best talent. However, this focus on talent retention also requires them to identify the optimal business location – one that is rich in amenities and other features. In a supply-constrained market, achieving both goals is becoming increasingly challenging, and ‘the best building and environment in a new location’ can be a solution.

There are two key pressures potentially influencing the move to emerging locations, explains Brown.

“You’ve got, undoubtedly, a lack of supply in the core areas, and what happens with that lack of supply is, of course, the costs go up.”

Following back-to-office mandates, companies are also finding that they need more space than they had thought they required two or three years ago, he says, as these directives are being implemented with a view to increasing productivity.

“So you’ve got a combination of the occupier’s rent going up per square foot, and their floor area requirements being greater than what they might have anticipated, which then hits them in two ways.”

As a result, occupiers are starting to look at where a compromise could be found. “If you’ve got a location which may be considered to be emerging, but it has the amenities and the transportation, that becomes attractive to the occupier. They’re getting a lot of what they are looking for, but maybe at reduced cost,” explains Brown. “And that doesn’t just mean reduced rental costs. There is the consideration of reduced rates as well. There is a lot of upheaval of the rating process at the moment, and what rates payable are going to be going forward. The general feeling is that rates payable in the core locations are going to accelerate at a faster rate than those in the emerging locations.”

Howard predicts that Mayfair business rates could increase to as much as £75–£80 per square foot, a jump not all organisations will be happy to absorb: “This payment has never been welcome, but has always been financial background noise – but when the payment is this high, for many occupiers it becomes a major factor in decision-making.”

In an unpredictable global economy, companies are assessing the value and cost of their location, depending on their own margin levels, capital expenditure or operating expense considerations. Their approach is also framed by whether or not they’re in a growth period, or how confident they feel about local and global economies going forward. By moving to an out of core location like Canada Water, an occupier can still get world-class workspace, great transport links – not just to international destinations but to core – and amenities, while getting an overall rate per square foot which is significantly lower.

“I think first and foremost, people want a world-class work space, world-class amenities and great transport connections, but they will be seeking the best value,” says Brown.

“There is always a tipping point, where occupiers will look at the value of everything, and will they get enough value out of the core location to be paying costs which might be significantly more than what they are in another location.

“So that’s the way that they will assess it: does the location which they’re moving to provide the return they’re looking for the money which they are spending? And I think as that delta becomes wider, between the traditional core and the emerging locations, then value points it closer to some of the emerging markets.”

The out of core locations attracting occupiers are those with great transport links, standout amenities and high-quality buildings, which explains the success of areas including Stratford and Canary Wharf, where HSBC recently signed its lease. These are qualities occupiers will also find at Canada Water, where British Land is building London’s newest town centre, and Art Invest is developing landmark waterside buildings.

“There are very few places where you can go for a sailing lesson before work then walk to work, or are 10 minutes by tube from Green Park,” says Howard of this evolving business district. “You’ve got Southwark Park on the doorstep. And all the green spaces and the river itself, absolutely gold amenities all around you.”

Howard says that there’s a huge amount of activity in Canada Water generally. “If you had come here six months ago, it would have looked completely different. There have been so many changes – the very striking new red boardwalk, two high calibre office buildings, a state-of-the-art leisure centre, and numerous retail and leisure options like Corner Corner and Vagabond. This is a hugely exciting time for Dockside Canada Water – the place is beginning to match the huge calibre of the real estate.”

As the development takes shape and occupiers start to bring to life the spaces in Canada Water, it’s an emerging out of core destination that’s a serious contender.