Schroders have announced a multi-million-pound deal with Whitehall to build and rent out a second large office block at Ruskin Square, their £500million development next to East Croydon Station.
And in doing so, they may well have pulled the rug out from under Croydon Council and any hopes they may have had of reviving Westfield’s interest in the town centre.
Ruskin Square is slowly – very slowly – taking shape after a patient approach over two decades from investors Schroders and developers Stanhope.
The “vision” for the former Croydon Gateway site is a mixed-use development comprising five office blocks and four residential blocks. Thus far, the developers have managed to deliver one residential block and a single office block.
Residents began moving into the 161 flats in Vita, the 22-storey block offering magnificent views of Platform 1 and the Bridge To Nowhere at East Croydon, in 2016.
Since when… nothing, nada, zilch.
Until yesterday, that is, when one of Schroder’s property funds, the Schroder UK Real Estate Fund (SREF), said that they had “secured a major pre-let with a government department on a 25-year lease at 2 Ruskin Square, a new 330,000sq ft building at SREF’s 1million sq ft mixed use development in Croydon”.
Schroder’s City types were not so crass as to discuss anything so tawdry as financial figures in their announcement, though the trade press speculated that since the HMRC building is only a little more than half the size of 2 Ruskin Square, and it was reported nearly four years ago that their rental deal was worth £200million, this latest agreement may be worth as much as 50 per cent more.
And it seems possible that these new offices could be earmarked by the Government Property Agency for the use of Home Office staff, including many of those currently working in Lunar House and Apollo House of Wellesley Road.
The Home Office’s lease on those two buildings expires in 2024. According to Schroder’s press release yesterday, “Work is anticipated to start on site in the summer, subject to planning, with a practical completion target of late 2023.” Sounds a neat fit, don’t you think?
Schroders refused to identify the intended tenants when asked yesterday.
Stanhope-Schroders have been grinding their teeth with frustration over their Croydon investment, especially over the past two or three years as they have watched as the promised nearby Westfield development has stalled and then… well, disappeared in a puff of smoke.
Indeed, it was in November 2018 that a senior Schroders exec issued a warning that with uncertainty over the retail regeneration in the town centre, his company would be pulling the plug on any future building works until they had a firm commitment from a long-term tenant.
“We have detailed consent for a second building and are ready to go, but I have made a decision not to go ahead until we have a tenant to take at least 50 per cent of the space,” said Neil Meredith, the head of asset management at Schroders. Meredith gave uncertainty over the Croydon Westfield as a major brake on development work on his site.
“It isn’t great when you’re trying to let an office building, but if Westfield happens it will be transformational,” he said then.
Given that Stanhope-Schroders had, from the moment HMRC moved in at 1 Ruskin Square, been buttering up Whitehall for another government department to take 2 Ruskin Square, you can imagine their reaction when they discovered that Westfield, together with Croydon Council, had also been in discussions with the Government Property Agency over providing offices on the Whitgift Centre site for the Home Office.
With business in the retail sector collapsing by the day, Westfield and their partners, Hammerson, egged on by the council, had sought to salvage something out of their plans by shifting from building a shiny new shopping centre to delivering their own, mixed-use development, including office space.
Yesterday’s announcement looks as if Schroders won. Certainly, they had kept the negotiations under wraps from Croydon Council. There were none of the usual bland quotes offred up from council officials to express their “delight” at the news. Indeed, the council only belatedly this morning put out their own press release that “welcomed” the news and which feebly sought to claim some faint credit for being a borough that has a railway line running through it to London.
In Schroders’ announcement yesterday, they said, “The long-term, inflation-linked lease commitment for 2 Ruskin Square will strengthen SREF’s defensive income profile and, including the HM Revenue and Customs lease, increase the proportion of SREFs rental income from government tenants to approximately 19 per cent.”
This latest building, unlike others on the site, is not designed by Foster architects, but Allford Hall Monaghan Morris, or AHMM. It will have 10 floors and will have “… a number of key sustainability design requirements will be incorporated, including all-electric energy strategy, rainwater harvesting, high-performance façade, 35per cent green roof cover, modular structural design to minimise embodied carbon, photovoltaics and a BREEAM Excellent target.
“The design also includes an outdoor terrace space and bicycle spaces with lockers available for tenant use to promote active lifestyles and fitness, as well as three retail units located on the ground floor intended for use by convenience and local amenities to support the community-focused approach to the development as a whole.”
Jessica Berney, a Schroders fund manager, said, “Three years after we welcomed HM Revenue and Customs to Ruskin Square, we are delighted that the scheme is still ticking all the right boxes for employers and visitors, as well as those residents who have made it their home in a first-phase of apartments.”
Schroders meanwhile, are left with outline planning permission for a further two office buildings, amounting to another 500,000sq ft of office space – or the equivalent of 1 and 2 Ruskin House again.
That it has taken the developers so long to get to the halfway point in developing Ruskin Square might be viewed as troublesome, but it could be catastrophic for the rest of the site once you factor in coronavirus.
If online shopping has done for high street retailing, might working from home yet impact the commercial property market?
Employers around the world, especially in London, have been discovering that they can operate with staff based not in costly real estate, but working from home under the pandemic lockdown conditions.
The lessons of these few months in 2020 are certain to influence decision-making in coming years when, always looking to drive down costs, businesses are very likely to consider whether they really need all that expensive office space on their balance sheets.
Schroders and Stanhope have already managed to weather two financial downturns during their involvement with Ruskin Square. Coronavirus seems set to deliver the world with a third economic depression.
And then what does a developer do with half-a-million square feet of architect-designed office plans that no one much needs any longer?
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