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Shard Developer Sellar to Seek Highest Office Rents Since 1980s
By Chris Bourke
Jan. 21 (Bloomberg)
To win the cash he needed to build western Europe’s tallest building, Irvine Sellar told his Qatari investors that space in the London tower would fetch the highest office rents since the 1980s property boom.
The Shard, due to open by the 2012 London Olympics, is one of the few towers to be built in London among a dozen conceived at the turn of the 21st century.
Sellar aims to charge as much as 70 pounds ($114) a square foot for office space, about 60 percent more than even the best offices in the main financial district half a mile away, according to data compiled by Cushman & Wakefield, though that wasn’t the only attraction for Qatar.
Named for its resemblance to a sliver of glass, the Shard will rise 310 meters (1,017 feet) from a site near London Bridge across the River Thames from the City of London. The 80-story building will include 13 luxury apartments with an estimated value of at least 15 million pounds each and a five-star hotel.
“We won’t be pushing the market -- the market will come to us,” said Sellar, 71, during an interview last week at his office in London’s Mayfair district. “Office rents reached 70 pounds probably 25 years ago in the City of London, so we’ve been there before.”
First Tenant
Transport for London, the operator of trains and buses in the city, has agreed to lease seven lower floors in the Shard. That leaves Sellar with about two thirds of the 600,000 square feet (56,000 square meters) of office space to fill in the tower and a similar amount in a building next door called London Bridge Place, due to be completed in 2013.
Prime office rents in the City of London climbed for the first time in three years last quarter. Even so, Sellar may struggle to find companies prepared to pay 70 pounds a square foot for space on the tower’s upper floors, according to Alan Patterson, head of European research at AXA Real Estate Investment Management in London.
“His problem is the short time-scale,” Patterson said by telephone. “If the tower was completing in three or four years, you could perhaps see it, but I think two years will be tight for him.”
Sellar, born and raised in London, started out selling gloves made by his father at a market. In 1969, he opened his first clothing store on Carnaby Street, and spent the next decade creating a chain of 90 outlets across the country.
Bell-Bottoms
Mates by Irvine Sellar, as the shops were called, sold bell-bottom jeans, floral jackets and other trendy clothes and were the first boutiques in Britain to offer apparel for both men and women. At one time, there were seven stores on London’s Oxford Street alone, counting Judy Garland and George Harrison among their customers.
“What they saw in it, quite frankly, was something I’ve never been able to see, because it wasn’t that great,” Sellar said.
Sellar switched to real estate in the early 1980s because “property and retail go hand-in-glove,” he said. His company, Ford Sellar Morris, developed department stores and other commercial buildings for several years until a recession at the start of the next decade led to its collapse in 1991. Sellar lost 28 million pounds.
Undeterred, he set up Sellar Property Group a year later, and has since completed projects including the Pompey Centre, a retail park in the southern English city of Portsmouth with space of 370,000 square feet.
“You can throw me in the desert and I’ll find a way of making a living,” he said.
Rich List
Sellar Property Group owns real estate valued at 450 million pounds, according to Sellar. The company has 1 million square feet of developments in the pipeline, not including the Shard. Sellar’s 36-year-old son, James, is chief executive officer and together they were worth about 165 million pounds in 2009, according to the Sunday Times Rich List. That was 45 million pounds less than the previous year.
The Shard was designed in 2000 by Renzo Piano, the Italian architect best known for creating Paris’s Pompidou Center of modern art with Britain’s Richard Rogers.
Sellar had decided to redevelop a gray office block next to London Bridge station and flew to Berlin in March of that year to meet Piano for lunch. According to Sellar, the architect spoke of his contempt for tall buildings during the meal, before flipping over the restaurant’s menu and sketching an iceberg- like sculpture emerging from the River Thames.
Phallic Symbols
“Tall buildings are often phallic symbols, a symbol of the desire to show how powerful you are,” Piano said in a telephone interview. “But sometimes towers can be good as they save space and give space back to the city.”
At that time, the U.K. was on the cusp of a five-year real estate boom that resulted in plans to build about a dozen towers in and around the City of London. Most of those that hadn’t been completed by the market’s peak in mid-2007 were shelved because banks had stopped lending.
In 2008, Land Securities Group Plc stopped work on the London skyscraper known as the Walkie-Talkie and British Land Co. delayed construction of the tower nicknamed the Cheesegrater. No companies had agreed to rent space in the buildings.
The global financial crisis pushed Britain into its longest recession on record, driving property values down by 44 percent from the top of the market and depressing rents. About 5 million square feet of offices were under construction in London without a tenant at the end of last year, according to a Cushman & Wakefield report published on Jan. 8.
Diminishing Supply
“The majority of this space is due onstream in the first six months of 2010, after which supply will start to diminish, placing rents under pressure,” the broker said.
Office rents in central London may have already bottomed out and will probably recover before the rest of the country, the Royal Institution of Chartered Surveyors said in a report published today.
The Shard also came close to being abandoned. Sellar sought permission to build the skyscraper months after the terrorist attack on New York’s World Trade Center in 2001 and said he only got through the approval process “by the skin of my teeth.”
English Heritage, the official organization for archaeology, heritage and conservation in England, then opposed the tower, calling it “a spike through the heart of historic London.”
The government approved the plans after a public inquiry, thanks in part to Ken Livingstone, the former Mayor of London who championed the tower from its inception.
“From the moment I met Irvine, I realized he wanted a legacy that he’d be respected for,” Livingstone said in an interview. “He doesn’t actually need any more money.”
Financing Challenge
Sellar’s next challenge was to secure financing for the project. Credit Suisse Group AG had agreed to provide the money, only to pull out because of the credit crunch. Sellar then fell out with his original partners, real-estate investors CLS Holdings Plc and Simon Halabi, leaving the door open for Qatar to come on board.
By then, Sellar was already in talks with four banks from the Arab emirate. After a year of negotiations, they each agreed to buy 20 percent of the equity, the same as Sellar. The developer’s stake was reduced from about a third.
In October, the lenders sold their shares to the Qatar Central Bank. The governor, Sheikh Abdulla Bin Saoud Al-Thani, said in December that the Shard would be “a symbol of the close ties between Qatar and the United Kingdom.”
Shangri-La Hotel
The Qataris invested in a building that will have 44 elevators and eight escalators when it opens in May 2012. London’s first Shangri-La Hotel, operated by the Singapore-based company of the same name, will take up 19 floors and the Shard will also contain stores and restaurants.
The best views will be from the luxury apartments near the top of the tower. These properties, which the developer estimates will be worth 5,000 pounds a square foot, will either be sold or rented out, James Sellar said in an interview.
That would rival One Hyde Park, a 1 billion-pound luxury development in the more affluent London district of Knightsbridge. Apartments were sold for an average of about 5,700 pounds a square foot in 2008, according to Knight Frank LLP, one of the brokers that handled the transactions. A second wave of sales is scheduled for the second quarter.
The Shard will dwarf Commerzbank Tower, a 259-meter high building in Frankfurt that’s been western Europe’s tallest since it was constructed in 1997.
“We all have an element of ego,” said Irvine Sellar. “It’s just nice to leave a legacy and say, well that’s an achievement.”
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