London looks east for space to grow

Copyright: David Lawson - Financial Times 2002


London is bursting at the seams. That comes as no surprise to visitors fighting  through traffic on their way in from Heathrow, nor long-suffering workers jammed  into crowded commuter trains. But it shook planners when they discovered conditions will get far worse without drastic action.

  The UK capital had been shrinking for as long as most can remember, losing 1.25m people between 1961 and 1981 alone. But a dramatic upsurge in the economy, particularly the financial services sector, has reversed the flow. Numbers are back to almost 7.5m - and growing.

   London’s first executive mayor, Ken Livingstone, has discovered he faces the mammoth task of finding space for 450,000 homes and 90m sq ft of offices over the next 15 years. The capital can no longer sprawl outwards because of rigid green belts. Nor can developers expect to fit all this commercial space in the usual City and West End locations, where land is already scarce enough to command some of the world’s highest prices.

  Livingstone’s solution, floated in the first strategic plan for 20 years, is to change centuries of tradition and move the city’s centre of gravity.  He proposes 30 per cent of new homes and 40 per cent of jobs will be generated in east London. No-one believes this will be easy: some think it impossible.

   There is certainly enough land. Vast swathes were left derelict by the decline of docklands and heavy industry. Canary Wharf is also proving that occupiers can be dragged eastwards. But the price could be enormous and many doubt the government will make resources available when ministers consider the plan next year.

  Livingstone admits changes will not happen without massive investment in public transport and the environment to meet demands for sustainable development. He offers no figure but Judith Salomon, Director of Property and Planning for the business pressure group London First says London as a whole needs more than £100bn for health, education, transport and housing and if the strategic plan is accepted, much of that should go into the east.

  ‘Investment in transport is critical,’ she says. That means government commitment to billions of pounds funding the long-delayed Crossrail linking into central London  and three river crossings to serve more remote areas called the Thames Gateway.

   ‘The mayor’s big problem is that he does not hold the pursestrings,’ says Peter Damesick, research director for international property consultant Insignia. ‘They lie in Downing Street.’

  Livingstone can’t expect any favours after beating the government’s mayoral candidate. He has anticipated problems by seeking closer ties with the property industry and offering backing on issues such as taller buildings. But in exchange, he wants a development ‘tax’ to help pay for transport and social housing.

  That has raised hackles. ‘Squeezing the industry this way could stop the London Plan in its tracks,’ says Huw Mosely, director of central London planning for international property consultant Jones Lang LaSalle.

  One of the mayor’s most unexpected allies is Sir Stuart Lipton, chief executive of Stanhope, who lost many a battle when Livingstone ran the city more than a decade ago  as leader of the Greater London Council.  Sir Stuart pioneered expansion out of  traditional development areas with schemes like Broadgate, the office complex over Liverpool Street Station, and Stockley Business Park, near Heathrow. Now Stanhope and fellow developer Chelsfield  are working on an even more audacious 10m sq ft redevelopment at Stratford, deep in east London.

  This is exactly the kind of development the development plan wants. It does not anticipate blanket redevelopment of east London but growth around public transport interchanges like the proposed Channel Tunnel rail link at Stratford.

   The light rail line running via Canary Wharf to the City is another focus for expansion. Michael Marx, joint managing director, of Development Securities has moved ahead of the game by tapping its potential with the 250,000 sq ft first phase of a business park out on the abandoned quays of the Royal Docks.

   ‘At the end of the day the market will decide whether  east London expands,’ he says. Marx exudes confidence because of the ‘massive’ price advantage of £25 a sq ft rents compared with £60 in the City and £40-plus in Canary Wharf.  He sees little difference to DevSecs’ office development around Paddington on the western boundary of central London, which has filled quickly because of cheaper rents.

  Both warn, however, that it will not happen overnight. ‘It may not happen at all unless everyone pulls together,’ says Sir Stuart. ‘Ken is saying all the right things but the government has to put in the money.’  Marx believes merely a commitment to fund Crossrail in future would stimulate development.

  The signals coming from government are not promising, however. Salomon points out that  ministers have dropped proposals to tax development gains, a major plank in Livingstone’s plan.  But they are acutely aware of the threat to London as a financial  capital unless it can provide enough housing and offices.