issue 2 autumn 2014 global property insight

Chicago rises Rich pickings On the move The real estate market springs Wealthy investors look How Coca-Cola GB found the back to life with the first new to the commercial sector perfect headquarters in the buildings in eight years as returns boom heart of ’s West End

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contents

Special reports editor michael Skapinker autumn 2014 Head of editorial content Hugo Greenhalgh Production editor George Kyriakos Art director Sheila Jack Picture editor michael crabtree Sub editor christina madden Global sales director Dominic Good Head of content activation Alexis Jarman Content activation manager mike Duffy Global associate director, commercial property Lyn thompson Advertising production 04 Daniel Lesar contributors

Kate Allen is the ft’s property correspondent Jennifer Bissell is the ft’s US web editor Liz Bolshaw is a freelance journalist David Crouch is a freelance journalist based in Gothenburg Edwin Heathcote is the ft’s architecture correspondent Brenda Hofmann is director of procurement at coca-cola Ben McLannahan is the ft’s correspondent Michel Mossessian is design S principal at mossessian & Partners

Neil Munshi is the ft’s chicago reuTer and midwest correspondent y; Chris Newlands is editor of ftfm, bibb the ft fund management section

Adam Palin is a reporter for cHarlie x; ft money knO Gill Plimmer is an ft reporter alan Daniel Ringelstein is a director at ;

Skidmore, owings & merrill Time Sarah Townsend is publications

editor at the Architects’ Journal DreamS 1. S: TO PHO

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investors 18 column chris Newlands looks at a 4. 2. landscape littered with ‘ghost towns’ and asks whether ’s 1. stalled housing boom threatens Deco delight the global economy the merchandise mart in openers 38 chicago – see page 50 20 second-tier cities 2. 06 outlet villages forget , London, Paris Towers of strength breaking ground out-of-town designer discount – the smart money is on Nanjing, the more London As an antidote to the zoned centres have revolutionised retail, Brussels and manchester for development – see page 8 ghettos of modern commerce, offering luxury for less and productivity and ‘liveability’ Edwin Heathcote admires the good-looking returns for investors 3. 05 estate of play historic mixed-use courtyard developers mark Preston of the buildings of central Europe 24 Grosvenor Estate – see the super-rich 42 page 44 08 the world’s millionaires are pouring column 4. introduction unprecedented amounts into Europe’s listed property market is bags of style from the chiltern firehouse to bricks and mortar, snapping up fragmented, and should consolidate Why retail outlets are in Washington’s Post office, grand iconic properties in prime locations for growth, says Kate Allen vogue – see page 20 industrial buildings are being salvaged from dereliction and 28 44 transformed back into landmarks statistics interview the indispensable data showing mark Preston describes his role 12 the focal points for real estate with the Grosvenor Estate and feature activity across Africa the fine balance between historic Scandinavia’s commercial assets and overseas growth property scene is booming as occupiers foreign investors flood in to take 50 advantage of its strong economic 30 chicago and population growth on the move New skyscrapers, massive Brenda Hofmann describes the downtown refurbishment – there’s fizz and excitement of finding the a real wind in the city’s sales perfect West End offices for her company, coca-cola 54 design 32 Breaking down the office cubicle is crucial for workplace success Gabriel Baertschi’s search for new premises that would make topping out his AstraZeneca staff connect 58 michel mossessian High-rise versus groundscrapers

ft.com/GPI breaking ground edwin heathcote

People love to live and work in lively places. It is a cliché. Experts in urban block capitals studies, from Jane Jacobs to Jan Gehl and Richard Sennett, suggest that cities work because people of all classes are obliged to rub up against one another. They find interest in a streetscape that is alive around the clock and in which the mix of uses maintains an active urban realm. Yet despite this simple idea that sounds rather obvious, cities are no longer being built this way. Developers like to build housing in self-contained plots, whether those are suburban tracts or condo towers; they like the control that solely residential use gives them and generally will not include commercial units unless zoning regulations demand it. Commercial developers, too, like the unencumbered purity of a central business district. They feel strength in numbers, they like their office towers to huddle together with their own kind. Even those cities most famed for their streetlife, for animated landscapes envied across the world – New York, Barcelona, Paris – are making the same mistakes with their new commercial developments. The conventional reasons given are to do with the differing sizes of floor plates needed for commercial, retail and residential use; the desire for global businesses to be together; and zoning regulations. The actual reasons include the developers’ desire to be rid of troublesome residents who tend to object to further construction – see the once densely mixed City of London and its rejection of residential developments, which has turned the historic capital of London into a place purely for capital. Yet there is another, rather neglected model that formerly worked very well. You can see it on the streets of most big central European cities, from Berlin to Budapest, Krakow to Kiev. It also involves a kind of zoning, but not in the same ways that tend to be seen in the Anglo- Saxon model. This is not zoning of the plan, but zoning of the section: you could think of it as a multi-layered torte. In practice, this meant big courtyard buildings, spec-built by individual developers and builders. They were 1. generally five to seven storeys tall (heights were carefully restricted by flats are roughly renovated as demand a civilised new prototype for the city in planning edicts) and had a courtyard at for more space becomes apparent. So which the division of the functions was their centre. The layering often began successful have these been at saving inscribed into the façade. The ground with a half-basement. This was the realm old buildings that they have effectively floor was glazed but with substantial of workshops and craftsmen, allowing gentrified the once end-of-life structures structural stanchions that gave depth light industry and artisanal skill to exist they intended to inhabit temporarily; and interest to the streetscape and in the heart of the city. The ground floor whole blocks are being brought back versatility to the display. to the street-front was occupied by retail. into use rather than demolished. Here, the first floor too was glazed, This might spread into the courtyard, In the dawn of modern architecture, but to a different rhythm. In Lajta’s with every inch of wall space occupied new interpretations of these blocks Budapest building (along with others by window displays or by vitrines as emerged as potential archetypes of he designed in the city around the you entered via a covered passage. the contemporary city. max fabiani’s same time) the commercial floors The ground floor of the courtyard Artaria House in Vienna (1901), Adolf were expressed as almost fully glazed, itself might be plain residential or it Loos’ Goldman & Salatsch building, also open and transparent, letting natural might be inhabited by trades: the tailors, in Vienna, and Béla Lajta’s Rózsavölgyi light deep into the floor plate. The furriers, cobblers, watchmakers and so House in Budapest (both 1911) pointed to apartments above were characterised on, that made a city tick. by more wall and The first floor facing the street was 1. less window, the reserved for commerce, the lawyers’, Front of house more solid surface publishers’ and accountants’ offices Béla Lajta’s Rózsavölgyi signifying the more House in Budapest has and so on. These rooms might also be private realm, workshops, commercial used as apartments; their piano nobile spaces and apartments sheltered from the proportions had a grandeur that made noise of the city. It them suitable for dwellings or show 2. was an architecture 07 rooms. Above these were the flats. yardstick of success parlante, an ideal The classic courts The lower the floor number, the higher around which mixed urban form that the ceiling and the better the interiors; retail and residential has almost entirely service rooms looked out onto the life flourished faded away. courtyard. Poorer apartments were The problem located at the rear of the building and came with the the cheapest accommodation was at next generation of the top or in the mansard roof space. modernists who, Almost all of the apartments would in a way, disliked have been rented, the exceptions being the dense city that the buildings’ owners, developers or was exactly the investors. The social and economic crucible that had structure of the buildings was absolutely given their ideas clear, yet all classes lived and worked succour. Instead, together in a single structure. they desired air These blocks did have servants’ and light, glazed stairs and courtyard entrances, but towers standing in the important thing was that they green space. Their were genuinely mixed environments. utopian vision was y As densely populated buildings, they 2. suburban rather BiBB worked hard; they became engines of than urban; it led economic activity. They have also proved to business parks cHarlie S; to be remarkably resilient. Now many of These were densely populated rather than vital these city centre blocks have seen their city centres and had its ultimate cHiVe

ar apartments converted into small offices blocks, engines of economic triumph in the zoned ghettos of al for architects and IT companies, start-ups modern commerce. The mixed-use Tu and small surgeries. In Budapest, a activity, and genuinely mixed blocks that were the leitmotif of central Vir a

jT use has been found for even the most European cities disappeared. Now that la dilapidated blocks, which are turned density is back in vogue and we see

Bela into pop-up “ruin-pubs”, bars that grow how a mix of uses enriches the city S: to inhabit the whole complex interior streets, perhaps it is time to return to TO

PHO structure of the buildings, so that further this undeservedly neglected model.

fT.Com/GPI introduction

08 chum ket rren da x; kno alan

Loving the landmarks s: 1. to pho

ft.com/gpi 1. astonishing atrium the skylight of 5 Beekman Street in New York, with the Woolworth Building in the distance. these former offices are soon to become glamorous apartments

2. more is more A relaxation of planning constraints has seen skyscrapers rise in London; the more London development was designed by foster and partners

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2. by edwin heathcote nineteenth-century developers used to vie with each other to create the most Similarly nautical is 10 trinity Square, once striking, the most spacious, the most innovative, centrally located and ornate the London port Authority’s headquarters, a massive, imposing cliff of a block beside the buildings in cities that were then exploding in scale. now the business districts tower of London. Designed by Edwin cooper have moved on to new clusters of bigger, smoother, shinier buildings and leaving before the first world war but only completed the grand, older ones dark and empty; shiny glass buildings like to be together. For in 1922, it served as the venue for the first years, many downtown areas became neglected, at best serving as sandwich bar session of the United Nations in 1946. it too is quarters for the remaining office workers. But finally those original, architecturally being slowly and expensively rebuilt as a hotel. Elsewhere, old government and municipal ambitious offices, in downtowns all across the world, are finding a new use. buildings are receiving the same treatment. the famous fullerton Hotel in Singapore, a the old buildings are now becoming grand being transformed into a 287-room hotel, the one-time general post office, was an early hotels. five Beekman, for instance, designed by building costs helped along by a new condo example. Another former post office, the Silliman & farnsworth, was once one of New tower next door. Across the Atlantic on the imposing building at the centre of Washington York’s most remarkable early office buildings – waterfront, the former headquarters Dc that was one of the few towers in the US and one of manhattan’s tallest when it was built of White Star Line, the owner of the titanic, has capital’s relatively low-rise cityscape, is being in 1883. At 10 storeys, its twin turrets towered also been converted into a hotel – Albion House. turned into a luxury hotel by Donald trump. in above downtown and its huge glazed atrium Built in 1896, its architect Norman Shaw also London, the chiltern firehouse, converted from was one of the wonders of the city. Now it is designed Scotland Yard, which it resembles. an old fire station by David Archer for hotelier

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The question we need to ask is: will the commercial properties we’re building today be of any value in a century? Will they even still be standing? The answer is almost certainly no

1. André Balazs, has become the city’s hottest Rafael moneo, Alvaro Siza and now also courtyard cocktails property, a perennially paparazzied hotel and Rem Koolhaas and Herzog & de meuron. this the fullerton Hotel in Singapore was restaurant for celebs and fame-seekers. Balazs architectural extravaganza may not make for formerly the post office has also bought a 1970s annexe of camden the most consistent campus, but fosters a sense 2. town Hall opposite St pancras Station, with plans of place, a sense that those who work here are cast-iron charm to create another hotel there. the wonderful Art valued, and that a culture of design feeds into Hopes rise for the ornate landmark Deco HQ of London transport, on Broadway a culture of innovation. it can be difficult to at 5 Beekman Street, NYc in St James’s, is also up for sale and, although believe that these are industrial buildings. it originally envisaged as a hotel, it now looks likely is more usually R&D that stays behind in city 3. cruise control to be turned into super-luxury apartments. centres as production moves out, but these Albion House, administrative centre the question you need to ask in light of buildings in the heart of Basel are actually of the White Star Line in Liverpool, these changes is: will the commercial properties producing things, embarking upon real – not has become a luxury hotel we’re building today be of this kind of value in just financial – innovation. contemporary a century? Will they even still be standing? the industrial architecture seems almost an 4. magnificently maritime answer is almost certainly no. the smooth-sided, oxymoron, so far has building for production the port of London Authority’s glazed towers might prove little use for anything fallen away from anything to do with design. former home on the thames. future other than offices. Something similar is going on in academia guests will enjoy the riverscape the recent media and political storm as elite universities must increasingly compete 5. over pfizer’s attempted takeover of the UK’s with each other globally to attract students. And deco delight AstraZeneca put big pharma into the headlines. they are doing this with architecture. Buildings London transport’s beautiful HQ will 10 the takeover’s failure, however, meant that the have become billboards, their architectural become high-end apartments British company could proceed with its plans ambition a sign of the quality of the teaching for a new campus in cambridge built by Swiss and thinking that goes on inside. An architecture 6. Industrial innovation architects Herzog & de meuron, designers of that was once reserved for cultural institutions is the Novartis campus in Basel, by tate modern and ’s olympic Stadium. now spreading to big business and learning. But Herzog & de meuron, starchitects pharmaceutical complexes have usually been also, perhaps most noticeably in recent years, to who are favoured by big pharma rather quiet places, secretive and anonymous, the cash-rich tech industries. Norman foster’s 7. often behind closed walls – the architectural $5bn HQ for Apple in cupertino, has architectural extravagance equivalent of a white lab coat. this one is rather grabbed headlines as a “Ufo”, a “frisbee” and a A classic frank gehry building for different, a plectrum-shaped glass doughnut “doughnut”, while frank gehry is designing for Roche, also in Basel designed to refer to the collegiate courtyard facebook. tech has suddenly “got” architecture. tradition (it has a hole at its centre); a building But the bug for interesting architecture has 1. that engineers serendipitous chance not spread to speculative commercial property. encounters between researchers and scientists. instead, the same few corporate behemoths this might be rather novel in Britain but is and local plodders dominate construction with nothing new in Herzog & de meuron’s home cookie-cutter towers, cheap solutions and the city of Basel. there, big pharma has become occasional self-conscious starchitect’s icon. it the architectural patron par excellence. Herzog might be worth looking at those beautiful, solid, & de meuron are the in-house designers for urbane structures from a century ago now Roche (it is difficult to imagine any UK or US being turned into hotels, to learn something firm with similarly radical pet architects) and from their longevity. Somehow, despite the they are currently building a controversial vicissitudes of the market, the changes in landmark tower for the company in this typically demand for the types of workspace and shifts low-rise city. they are also, rather surprisingly, in the fashionability and value of downtown building for the competition – Novartis. areas, these are buildings that have held their Novartis has become perhaps the most cultural and, ultimately, their financial value. extraordinary corporate architecture patron Despite their mass, their complexity, despite in the world (its only competition is nearby changes in technology and working practices, furniture manufacturer Vitra, in Weil am Rhein). they have survived as landmarks and as beloved the Novartis campus in Basel is like a museum urban institutions. there is no reason not to aim of contemporary architecture with buildings for the same standards in today’s construction. designed by frank gehry, SANAA, tadao Ando, the future will thank us.

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photos: alan knox; aFp/getty;nyt/redux/eyevIne;thomasmayer/novartIs;herzog&de meuron 3. 11 cool designs, hot property Forget Nordic noir – things are looking very bright indeed in Scandinavia, as foreign investors rush to make a killing in its thriving commercial property market, writes David Crouch TY GET Harbour lights :

Gothenburg is the largest port TO

in Scandinavia PHO spotlight scandinavia

2.

1. Pull up a chair The ambitious redevelopment of Gothia Towers is a sign of Scandinavia’s confidence, as overseas trade comes to the table

2. 1. Cook it and they will come Executive chef Krister Dahl of Gothenburg’s Upper House restaurant; his cooking has drawn international epicures

3. On the way up On the roof of Gothenburg’s newest hotel, two hives business models of similar complexes in the US and Asia, Industry insiders talk of ‘signs of of bees are busy processing the nectar from the late says Stenbäck. Billboards for the hotel’s new theatre declare 2007 again’ – this mall summer flowers 25 stories below. They were installed that the headline act – magician Joe Labero – is bringing was bought by US firm Starwood 14 by executive chef Krister Dahl, who wants their honey for Gothenburg “closer to Las Vegas”. “The second-tier city is last year, in a deal worth $590m his breakfast recipes and home-brewed ale. His new a trend right now,” Stenbäck continues (see our feature on restaurant has already been voted ’s best by page 38). “Everybody has already been everywhere, they Dagens Industri, the business daily, and he is focused want to find the next places to be.” on gaining his first Michelin star. Max Barclay, head of international business at The twin Gothia Towers have been a feature of the Stockholm-based commercial property specialists city skyline since 2001. Since then, an additional five-star Newsec, agrees that investors have started to look at “hotel within a hotel” has also been added atop the second the secondary cities in markets such as Sweden’s, tower; the Upper House includes a spa, luxury suites and where there is a shortage of properties in the capital’s a glass-bottomed outdoor pool that juts vertiginously central business district (CBD). beyond the 19th floor. But in December, a third tower will “In recent years, the focus has been on the so-called open, elevating the hotel into the elite club of Europe’s five core locations in Stockholm, the best buildings in the best largest, with 1,200 rooms. locations, offices with good tenants and long leases,” says Even in a country that has seen Europe’s strongest Barclay. “But because of a lack of product and low yields, economic growth since the 2008 crash, this might seem the interest has been more focused on the outskirts, and a big bet. But bees or no bees, the hotel is buzzing. investors are also looking at other, growing cities. That’s “I would say it’s not a gamble, but high ambition,” where most of the deals are being made now.” says the hotel’s new chief executive Daniel Stenbäck, Sweden’s commercial property scene stands out of the 1.2bn SEK ($158m) invested in the new tower. “We as producing big numbers for such a small country. are aiming to be one of the main venues in Europe for This is the fourth-largest market in Europe after the conventions and corporate events – but with a distinct UK, Germany and , thanks to high liquidity and Scandinavian touch.” a wall of money from domestic institutions trying to The hotel stands at the head of Gothenburg’s raise their exposure to a sector with high, stable returns. Evenemangstråket, or events thoroughfare, along which over the past year, moreover, the Swedish krona has a football stadium, rock concert hall, a giant science centre, fallen against the dollar, euro and sterling, thus lowering cinema multiplex and Scandinavia’s largest amusement a major barrier to foreign interest. In 2006-07, more than park are all within walking distance. This unique concentration of venues inside the city means it comes Lindman alive when thronged with large numbers of people; the ‘We aim to be one of the main venues n hotel (the third-largest in Scandinavia) is actually an integral E:sO part of the Swedish Exhibition and Congress Centre, which ÅkE

in Europe for corporate events – : attracts a million visitors every year. TO The Gothia Towers expansion is inspired by the but with a distinct Scandinavian touch’ PHO

fT.CoM/GPI Sweden’s commercial property scene stands out as producing big

numbers for a small country 3. sweden

42 TimE drEams ; On ss PEr

1. rbjOrn TO : TO PHO half the investment in Swedish commercial property came krona in May, and managed to circumvent the strong from overseas, as the country’s high transparency, liquidity domestic competition by doing the deal off market. and good fundamentals gave it a reputation for being a “We had been monitoring it for some time, waiting safe haven. Since then, however, many investors have for Skanska to make up its mind about whether it wanted had problems on their home turf. to sell,” says Joen Siggelin of Scius, Invesco Real Estate’s As a result, foreign investors who came here in that local operating partner in the Nordics. “When you come last wave of interest have become sellers to the big to the core segment, the supply of good quality stock is domestic institutions. Since 2009, the proportion of an issue, so when things do become available they can property investments made by foreigners has been quickly become expensive.” between 10 and 20 per cent, compared with 40-60 Invesco is bullish on Sweden, says Siggelin, and per cent before the financial crisis, according to Newsec although the weaker krona makes it more challenging research. “for the first half of 2014, foreign investment in to achieve returns on office properties, it has an appetite commercial property is up to 15 per cent,” says Barclay. for more – on average, the company has been doing a “This is still low, but there are signs of a trend and the deal a year since the market recovered in 2009. Making possibility for deals is increasing, with the currency the Skanska deal off market meant that Invesco could 2. being one of the factors.” avoid a competitive bidding situation. “of course there’s Interest rates are at a historic low, while alternative a bit of luck involved,” says Siggelin. “You have to make investments such as bonds or the stock market that one call on the right day at the right time, when 1. The americans are coming are volatile or offer low returns. Bank finance has they are in a good mood!” Entré Lindhagen office complex in also loosened up for larger “platform” deals, says from afar, Scandinavia might look like a single property Kungsholmen, Stockholm; US firm Daniel Gorosch, managing director of property brokers market, but up close there is plenty of diversity. While Invesco bought it from Skanska for JLL in Sweden. “There are signs of 2007 again,” he says, Invesco has looked closely at finland and Denmark, it has 1bn SEK ($140m) pointing to a trend that began with the acquisition by confined its investments to Sweden, paying less attention

2. Starwood Capital, a US private equity firm, of seven major to Norway because it is outside the EU. Norway’s oil and best address in town retail centres in Swedish cities for $590m a year ago. gas money also means foreign investors have a tough Stockholm City Hall, also in “We also know that other large deals are cooking,” time competing with domestic investors. Kungsholmen. In this core business says Gorosch, although Starwood Capital declined The economies of Norway and Sweden are doing district, prices are premium to comment for this article. well, but in eurozone member finland it’s a very different from annual volumes of 60bn-80bn SEK in commercial picture, with GDP falling since 2012 and serious jitters over property over the past five years, 2013 saw an increase to Ukraine and finland’s bigger neighbour to the east. “You almost 100bn SEK, while this year Newsec expects 120- can look at this as a risk or an opportunity,” says Barclay. 130bn SEK – a significant jump. “But you should not expect quick turnarounds – it could Most business is still in the residential market, but with take a while for the market to recover.” 17 almost 30 per cent in the office segment there are signs Denmark’s economy is slowly recovering, although of investors accepting higher risk to get better returns, foreign investor interest is still mainly confined to as the drought in CBD locations continues. In one of Norwegians and Swedes, and residential property. one the few CBD deals, Germany’s Allianz Real Estate sold a investor to look outside Sweden is WP Carey, a US real prime collection of central Stockholm offices, shops and estate investment trust with $10bn under management, apartments to Sweden’s AMf last year for €180m. There which places a priority on long-term security of income is a record low vacancy in Stockholm offices – 3 per rather than “flipping” assets for a quick profit. cent in the CBD and 9 per cent in the city overall, says In August, it purchased the headquarters of french Gorosch. The combination of the lack of available land oil company Total in Norway’s oil capital Stavanger for with very tough regulations make it almost impossible €86m; in february it paid a similar amount to acquire the to build new assets. headquarters of Siemens, a German engineering company, Scandinavia has a combined population of just 26m in oslo. WP Carey also made steady investments in people, so the obvious way into the market is through finland between 2001 and 2008 totalling some €350m. its capital cities, especially Stockholm, where the presence “As an investor, these countries have strong of large legal, consulting and accountancy firms makes fundamentals,” says WP Carey director, Arvi Luoma, who it easier to do business. “You go to the largest place and focuses on European acquisitions for the company. “They start from there,” says Barclay. “The chances of making inherently provide a lot of comfort and are natural hedges a mistake in Stockholm are also much less because of to the other economies we consider.” the strong economic and population growth in the city, The company had been looking at Norway for a long even though some micro areas should be avoided – time, wanting to get in, but it was “an insular market”, says you need to do your homework.” Luoma, with most property traded internally among local In the biggest deal by a foreign investor this year, New funds and institutions, with thin margins. York-based Invesco Real Estate purchased a prime office It’s about being at the right place at the right time, and property on Kungsholmen island in central Stockholm; it taking advantage of a situation, he says. Last year some paid Swedish construction group Skanska around a billion of the big Norwegian funds were net sellers to reduce their real estate exposure, which created opportunities. Developers also like to bring in international money – it adds kudos, a different sort of capital. ‘These countries have strong “We go where others don’t want to,” Luoma says fundamentals, they are natural of WP Carey’s investments in Norway. “We feel that the market has perhaps mispriced the risks and hedges to other economies’ undervalued the prospects.”

fT.CoM/GPI investors chris newlands

But concerns persist. Housing projects continue to lie empty and home economics China’s much-reported and much- hyped “ghost towns“ continue to spook. The belief was that urbanisation It is overbuilt, it is overpriced and it is say many. “It is not a long-term problem,” would generate sufficient demand to overleveraged – is the Chinese property says Lan Shen, an economist at Standard fill the vast apartment blocks being built. market wobbling towards collapse? Chartered Bank in Beijing. However, the problem has stemmed Numbers that were once impressive, The sense is that lending conditions from the evident mismatch between such as the perhaps now well-worn fact for mortgage loans in China are too supply and demand. Massive that in 2011 and 2012 China produced tight to cause any great concerns. The construction has taken place in second- morecement than the US did during the mandatory down payment ratio for and third-tier cities where urbanisation entire 20th century, have since dropped. most mortgage loans is between 30 was never strong, while building in larger The latest figures remain striking, and 40 per cent, even for first-time cities has catered for middle-to-high although now for the wrong reasons. buyers. Down payments for second earners, leaving the many low-income In July, house prices fell in 64 of the 70 homes jump to 60-70 per cent. households little option but to look on as Chinese cities surveyed by the National As a result, those fearing that a steep construction took place. “The increase in Bureau of Statistics, the biggest monthly fall in house prices might drown banks in house prices has created a huge wealth decline since records began in 2005. bad debt could be overstating the issue. gap. It is up to the government to match Once a picture of health, the Chinese “The slowdown is less severe than the demand and supply dynamics over the property market is now looking off-colour international media has portrayed,” says longer term,” says Luk. with construction activity cooling, land Ben Luk, global market strategist at JP The consensus is the government sales slowing, apartment sales sliding Morgan Asset Management. This year’s is ready to do that. An acceleration in and unsold inventory rising. Meanwhile, dip has been on everyone’s radar screen, the construction of social housing and 18 access to finance is tightening. he adds, “but strong household balance a reduction in approval procedures has already taken place. More must be done,

heading for collapse? however. And what of the implications China’s stagnant for the global property market? Knight property sales are Frank, the property consultancy, due to the mismatch predicts that Chinese money flowing into between supply and international property will double before demand the year is out, with the number of deals originating from China expected to reach their highest levels since 2007. Will that trend be derailed by issues at home? Russell Platt, chief executive of Forum Partners, a global property investment firm, thinks not. “I would contend that the biggest risk facing the global property market is not China but uncertainty surrounding the extent to which quantitative easing has created abnormally low property yields.” The local property market is largely funded by Chinese savers and banks, he adds, and the impact of falling prices will “play out in a market that is still largely If all of the above were happening sheets and strict mortgage conditions insulated from the rest of the world”. somewhere else in the world it would will prevent the sector from derailing

still be worrying. Given it is taking place the overall economy”. Chris Newlands is the editor of FTfm, y

in the world’s second-largest economy The International Monetary Fund the FT’s fund management section bibb makes it all the more alarming: some agrees. In a paper published in April, it view China’s spluttering property market ranked China as having the fourth-lowest charlie China’s spluttering property ;

as the biggest threat to the global level of household debt among 11 Asian ty

economy. But fears of an imminent countries, at some 12 per cent of its gross market is seen as the biggest get s:

collapse similar to that in the US after domestic product. In New Zealand and to

the sub-prime crisis are also overblown, , debt levels exceed 90 per cent. threat to the global economy Pho

FT.COM/GPI

PHOTO: reuTers No Out- lur re w people ta village ing of de il, -t their ve sa ow fo vvy lopers r n fas di lux sh hion, sco ur Big op ha off br unt y ands er pers ed ve wr labels at such Ba half g villag de a as it the bar ev Gu es gain re signs cci gular en ar and Gi e es price ty pic ll in ally ha on Plimmer bargain the ve As re do ia modelled ’s wnturn. br passion ands 21 investors outlet retail centres

Cash-strapped but still want a Gucci handbag? Some retail villages are among the world’s From Beijing to Britain’s Bicester Village, fashion-conscious consumers are increasingly turning to outlet villages for best-performing shopping destinations, their luxury purchases. Typically single-storey, “village” style according to the value of sales retail centres selling goods at a 30-70 per cent discount, designer outlets were considered a risky investment as recently as the turn of the century, says Andrew Rich, local requirements,” says Rich. “This is the key to optimising manager for TIAA Henderson’s European Outlet Mall Fund. performance, tenant mix and the shopper experience.” But in fact, the sector has defied expectations and John Lutzius, managing director at Green Street its numbers have grown faster than those of traditional Advisors, a property consultancy, agrees that out-of-town shopping centres in the past decade, as luxury retailers have shopping villages have delivered good returns compared increasingly embraced the concept to dispose of surplus with much of the rest of the retail sector over the past few stock and last-season lines. Brand-hungry consumers also years. Furthermore, the gap between good quality outlet rushed to seize discounted clothes in the recession. “Outlet villages and shopping centres has narrowed, he says. “Ten villages have fared much better during the downturn than years ago, yields for investors were very high because many shopping malls did,” says Rich. “They have proved a everyone was nervous about the format,” he says. “But very strong performer during the recession.” premium outlets have been such strong performers that Vacancy rates – at around 2 per cent – tend to be lower yields have come down.” than at traditional shopping malls, while leases also tend The popularity of outlet centres has been driven to be shorter – at around 10 years – and tied to turnover, by retailers, which are increasingly promoting them as providing retailers and investors with greater flexibility. shopping destinations. Although some luxury French

Darren Yates, partner in commercial research at Knight brands such as Louis Vuitton and Hermès have tended OOmBerG

Frank, says the schemes tend to be managed aggressively. to shun outlet villages, they are increasingly on their own. Bl ; “If they don’t meet turnover, they can be moved within the High-end retailers including Gucci, Armani, Prada, Dolce 1. scheme or ditched altogether,” he says. “The operators are & Gabbana and Burberry have all embraced the market, Designing the discount dream alamy constantly reviewing the tenant mix. while there has also been an influx of north American Fashion Outlets of Chicago being built: Bloomingdale’s and Saks Fifth ans/ “Outlet centres have been relatively recession-proof players opening outlet stores across Europe and Asia, Avenue became its anchor stores during the downturn because of the discount angle. This including Michael Kors, Abercrombie & Fitch, True Religion, ev reflects the fact that it’s still a relatively new retail format, Coach and Fossil. 2.

having first emerged during the mid-1990s – so growth is More established outlet traders such as Tommy Hilfiger, It takes a village lfOur starting from a low base.” Nike and Hugo Boss have also been keen to upscale Sales per square foot at Bicester Ba Village last year were three times 22 Although short leases traditionally deterred investors, and create larger, destination stores in the villages. Other those at Selfridge’s as they are potentially more volatile, in reality rents keep retailers actively seeking to expand their outlet portfolio GreG increasing, says Rich. The widespread use of performance include Furla, Desigual and North Face. 3. break clauses also means that underperforming tenants The US – where the first modern multi-store outlet People’s republic of shopping Chinese retail centres mimic Italian could be removed quickly. centre in the world opened in 1974 – is the most saturated architecture; this one in Suzhou is And with turnover at out-of-town discount shopping market, with outlet space per capita the highest in the inspired by Verdi’s operas

villages increasing on average by between 110 per cent and world. But Britain and Italy are also well supplied compared /redux/eyevine; 180 per cent during the recession, investment funds have with Germany and France, where restrictive planning laws 4. nyT performed well, he adds. “The flexible leasing structure have curtailed further openings. In central and eastern Labels for less High-end retailers including Armani, means that outlet operators can respond very quickly to Europe the market is just taking off, with several schemes Prada, Gucci and Burberry have all

structural changes in the global retail market as well as in the process of construction. embraced this new market PHOTOs:

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FT.COM/GPI In some cases, out-of-town retail centres are numbered for luxury retailers keen to protect their image and status. among the world’s best-performing shopping destinations While traditional shopping centres are suffering from according to the value of sales. And they are also cited the rise of online shopping, analysts believe that out-of- among the world’s most popular tourist haunts. town discount villages may be insulated from the change. Value Retail, for example, which owns the Bicester “They are designed for people who enjoy the shopping Village outlet in Oxfordshire, says three out of four Chinese experience,” adds Rich. “The ambience is very important.” tourists to the UK visit its retail park, making it one of the In addition, fashion and footwear, which comprise most top tourism destinations for Chinese visitors to the UK. of the offering at an outlet, represent a smaller proportion The market with the most potential may well be Asia, of online sales “simply because people want to touch and boosted by the rapid increase in disposable incomes, feel these items”, Rich says. “We believe that outlet malls increased urbanisation, and a rise in the number of are the most likely part of the retail market to withstand the millionaires – whose average age is 20 years younger than shift to online shopping.” those in the US and Europe. The Chinese, in particular, The growing popularity of outlet centres has attracted are also more likely to be more exuberant and celebrate new entrants including ING, Blackstone and UBS, even success with material goods, says Rich. though their impact remains niche, accounting for just 2.7 And although for the most part successful outlet per cent of the total shopping centre market. But while the schemes tend to look the same anywhere in the world, sector remains small compared with others within retail, China has spawned a series of more interesting designs. In Rich firmly believes that this is an expanding market. China, designer outlet stores include the Florentia Village Designer Outlet Centre, which opened in 2011 in Wuqing, between Beijing and Tianjin. It is modelled on Venice, Why investors need to shop around complete with canals and gondolas and traditional Italian buildings in pastel shades; it has attracted brands that Every shopper craves a bargain, but strong financial returns coupled with limited include Gucci, Prada Valentino, Bulgari, Bottega Veneta, opportunities mean that investors looking for exposure to the outlet retail market Fendi, Loewe, Mulberry and Jimmy Choo. Silk Road may have to pay mark-up prices, writes Adam Palin. Holdings, which owns the village, is currently working on The sector has demonstrated not just exciting income growth, but resilience two new designer outlet shopping centres in Guangzhou through the crisis. The €1.5bn TIAA Henderson European Outlet Mall fund – which and which, respectively, will offer 45,000 sq m and invests in McArthur Glen designer malls – has achieved average annual returns of 56,000 sq m of shopping. And in May this year, Value Retail 12.5 per cent, after all fund costs, since 2004. By contrast, European retail funds opened its own outlet centre in China, a vast development in overall have delivered negative annual growth of 0.1 per cent over the past decade, Suzhou also modelled on an Italian village. It will eventually according to data from Inrev, a body for investors in non-listed real estate vehicles. represent around 100 luxury brands. However, opportunities are limited as most assets belong to private companies or 23 Rich cites the strong culture of gift giving in China, often portfolios, says Mat Oakley, director of commercial research at . “Bizarrely, the in the form of clothing and accessories, as one reason easiest option [for institutions] is probably to participate in building one,” he says. behind the healthy market in Asia. Chinese consumers Indeed, the likes of Aviva and Hermes are among outlet developers in the UK. also like the heritage behind British brands: Burberry, for John Lutzius, managing director at Green Street Advisors, says US investors example, reported like-for-like sales growth in China of 30 could consider a real estate investment trust, Tanger Factory Outlets. The owner of per cent in 2013. Nevertheless, there are obstacles, including more than 40 outlet malls has recorded annual total returns averaging 15.7 per cent much outlet centre space that is not of high enough quality over the past decade, compared with a US Reit index average of 8.8 per cent.

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FT.COM/GPI

sq The the and ke sp su re su eping mor ec paid fe ms turns per ta fo in The r Ne homes ta cular in sk w -r yscr Yo uar their r rk ich in commer aper the , and and Manhattan. One5 , holds y ar wr Sa 7 we fe the fuelling is ar at e Man as the it re house in e cor y alth talles es belong d ci seeing ve fo s t re r Je al the sidential to sting saf nnif fo highes pr re demand. ign building e t oper speculat prices ar er in st e Bisse or ag br e s eq tie ge icks ua s, And ll ri ll ng y

PHOTO: dPa PicTure alliance/alamy investors the super-rich

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1. 4. Golden wonders The Trumps at the ground-breaking ceremony of their recent acquisition, the Old post Office in Washington

2. Top of the world High-end residential properties such as the One57 block in NYc are delivering elevated returns /redux/eyevine 3.

Height of ambition nyT four units within the the One57 skyscraper were sold to foreign buyers off-plan – for $150m each reuTers; ;

4. Ty Capitol gains The post Office boasts spectacular geT views over Washington; Trump will spend $200m turning it into a hotel

5. OOmberg;

Upward curves bl The Tri-Bowl in incheon, South Korea. Almost half of all commercial 5. investment is directed towards Asia PHOTOs:

fT.cOM/gpi “Opportunities have no boundaries,” says Donald Trump. half of all recorded high-end commercial investments both And the billionaire property mogul should know: with new stemmed from and were directed towards Asian markets, office and residential projects underway in countries as according to Real capital Analytics. diverse as india, Brazil and georgia, it is an exciting time to Looser regulations, particularly in china and Taiwan, diversify, he told the Financial Times. “We’ve been expanding have helped stimulate the global market, according to cBRE, internationally for some time now . . . There are a lot of allowing for direct overseas investments, higher real estate opportunities and many good reasons to do so.” allocations and a simplified approval process. Research But while Trump is known for having made both his first suggests that private investors increasingly prefer purchases and his second fortunes in real estate, he is increasingly joined that allow for direct ownership, in contrast to investing by an emerging class of private investors, many of whom through intermediaries, commingled funds and multi-family struck it rich elsewhere. Amancio Ortega gaona, the world’s offices, where both the profits and risks are shared with others. fourth-richest man and founder of the high street Zara chain, The number of ultra-high-net-worth individuals rose 3 per cent has built up a property portfolio that could be worth more worldwide last year and is slated to rise another 38 per cent than $6.1bn, according to Bloomberg. Ortega’s holding com- over the next decade, according to . pany, ponte gadea (also known as pontegadea inversiones), The boom in the residential market is fuelling interest in recently snapped up Devonshire House in London for £400m the commercial sector. in New York, before the residential and a series of relative bargains in New York’s Meatpacking sales office even opened for the new 90-storey One57 District for a total of $94m. skyscraper, the developer sold four units, each worth roughly The super-rich have always invested their wealth in $150m, to foreign buyers, says Howard Lorber, chairman of real estate, but with new high-profile investors like Ortega, brokerage Douglas Elliman. While property usually proves global property is coming to the fore as a prime asset class. to be cyclical, Lorber says demand from the super-rich will Though the estimated values of Trump’s and Ortega’s continue, particularly in New York and London where there is portfolios are comparable, Trump dismisses any suggestion greater transparency and stability, economically and politically. of competition with these words: “i tend to be ahead of it.” Some 15 per cent of the world’s super-rich are estimated to Ultra-high-net-worth individuals (those with more than be considering a permanent change in their primary country $30m) typically hold about a quarter of their wealth in of residence, according to Knight frank, with the UK and US property, according to the 2014 Knight frank “Wealth Report”. at the top of their wish lists. “Real estate is a diversification of The percentage of their total net worth invested in property a portfolio, just like buying art,” Lorber says. “people buy art, rose from in the past year, the survey adds. Memories of the hang it in their homes, look at it and love it. i’m not one of economic crisis – partly sparked by the collapse in the value of those people but i am for real estate . . . it’s something you investments in commoditised bundles of low-end mortgages can enjoy while it appreciates.” – are fading; the top end of the property market has increased exponentially and the commercial sector is booming. Overall, investors – private or otherwise – spent $1.2tn on high-end commercial properties in 2013, an increase of almost 80 per cent on 2010, according to Real capital Analytics, a firm focused on the investment market for commercial real estate. With $51bn flowing into prime commercial properties (those worth more than $10m) this year alone, New York and London remain the favoured destinations for investors looking for opportunities. They each offer history, location and long- established wealth, according to consultants at Knight frank Real Estate. And both cities are seen as safe havens for investors fleeing domestic, political or economic uncertainty. “Whenever there’s a lot of trouble going on in the world, or seems like there is, it is especially attractive for investors in troubled areas to invest their money elsewhere,” says Ben carlos Thypin, market analyst at Real capital Analytics. “commercial property offers bond-like steady income from rents, but with an equity-like potential upside once rental growth comes through,” writes peter Maccoll, global head of capital markets at Knight frank, in the 2014 Wealth Report. Sovereign wealth and national pension funds, traditionally big bond buyers, have therefore emerged as huge players, says Maccoll, swiftly followed by individual investors: the super-rich. A Knight frank survey of more than 23,000 ultra-high- net-worth individuals revealed that more than 40 per cent had increased their property allocation last year, while another 47 per cent had plans to increase it in 2014. “commercial real estate has had an unprecedented amount of equity flow,” says Spencer Levy, Americas head of research at cBRE, “particularly from foreign investors.” private high-net-worth investors are more likely to invest in their own home towns, such as Miami, Los Angeles or San francisco – but Asia is also growing in importance. Nearly statistics africa’s hot spots

Some regions have stabilised, but these are the focal points for real estate activity on the continent, with most investment seen in Kenya, Nigeria, South Africa and Mozambique Algiers 2 3 Tunis US$ per sq m / month US$ per month 1 Casablanca TUNISIA Retail Industrial Residential (four-bedroom executive house) MOROCCO 4 Tripoli 1 26 35 7 4,500 ALGERIA WESTERN 2 45 50 9 3,500 SAHARA

MAURITANIA MALI 10 15 4 3,000 3 6 Nouakchott NIGER SENEGAL 4 40 100 8 8,000 Dakar 7 GAMBIA Bamako BURKINA N’Djamena GUINEA 8 FASO 14 40 100 4 3,500 BISSAU GUINEA NIGERIA 5 BENIN 28 Freetown 9 GHANA 13 Abuja IVORY SIERRA LEONE COAST TOGO 6 9 12 2 4,000 LIBERIA 12 Lagos CAMEROON 10 11 Douala Abidjan Accra 17 Malabo 16 18 Yaoundé 20 20 4 4,000 7 EQUATORIAL GUINEA GABON 8 14 10 3 3,000 CONGO Key Kinshasa 25 9 17 17 3 3,500 GDP per capita by purchasing power parity (PPP), 2012 Luanda 26 $14,000 or above 10 22 46 6 5,500 $7,000 - $13,999 $4,000 - $6,999 ANGOLA 11 40 45 8 6,000 $2,000 - $3,999 $1,500 - $1,999 NAMIBIA 12 85 65 12 10,000 $1,000 - $1,499 Windhoek 32 Below $1,000 65 65 10 10,000 13 Data unavailable

14 30 35 6 4,000

35,000 15 25 30 10

FT.COM/GPI 4,000 35 25 5 16 3,000 8 8 2 19

3,000 24 30 4 17 8,000 25 25 4 20

4,000 16 20 3 18 4,500 15 30 4 21

2,800 18 22 3 22

50,000 19 25 10 23

Cairo 5 4,400 15 31 4 24

LIBYA EGYPT 8,000 35 40 8 25

15,000 150 120 15 26

SUDAN CHAD 10,000 21 30 6 27 Khartoum 15 ERITREA

DJIBOUTI 3,500 12 17 4 28

21 Addis Ababa CENTRAL SOUTH 29 AFRICAN SUDAN 3,000 20 35 5 29 REPUBLIC ETHIOPIA Juba 19 Bangui 20 SOMALIA UGANDA 1,700 6 8 2 30 KENYA Kampala 23

RWANDA22 Kigali 24 Nairobi 1,000 6 15 2 31 DEMOCRATIC BURUNDI REPUBLIC OF CONGO 2,500 18 30 6 32 TANZANIA 27 DaresSalaam

2,000 14 31 7 33 MALAWI

ZAMBIA Lilongwe 28 Lusaka 29 5,500 20 45 6 34 30 Blantyre MOZAMBIQUE ZIMBABWE Antananarivo 37 MAURITIUS 6,000 30 40 10 35 31 Bulawayo BOTSWANA MADAGASCAR Port Louis 38 Gaborone 33 Maputo 6,000 19 40 5 36 Johannesburg 34 35 SWAZILAND TT

2,500 14 35 5 37 BIRKE LESOTHO SOUTH AFRICA RUSSELL : 36 Cape Town 3,500 34 45 6 38

Source: Knight Frank APHIC GR

FT.COM/GPI occupiers on the move

life is sweet

Creating an office that does justice to such a signs, coolers and vending machines in her search for the 1. brand as Coca-Cola is not an easy task. We wanted to perfect pieces for this new space. From early advertising A lot of bottle reflect the rich heritage of the 128-year-old company to the classic bottle contour, each display is chosen to Artist Stuart Haygarth created the sculpture as well as create a good working atmosphere for our represent the company’s iconic legacy. in reception, made of 300 London employees. Given the extent of the work Perhaps the greatest challenge in terms of the office 80,000 acrylic “ice involved, we knew we had to get it right. layout was to appreciate that every person is different. chunks” in the shape of Having been happily based in Hammersmith for more Some work best alone, others in groups; we needed to a falling comet. than 20 years, it was an emotional experience to leave reflect that in the layout and get the whole team on 2. our long-term home. However, our desire for a world-class board from the very start. We took a collaborative Let there be light facility, and the repairs required to the existing building, approach, involving 73 employees across different project Open plan workshops meant we needed to look elsewhere. teams, covering areas such as eating, space and products. and meeting spaces After an extensive search, we settled on 1a Wimpole They helped us make decisions about everything, allow for a creative and collaborative Street, a building in the West End with quite a history from our café to the position of their desks. We even set environment of its own, having been opened by King George V and up sample spaces at Hammersmith for staff to become Queen Mary in 1912 as the home of the Royal Society of accustomed to what their new home would be like. The Medicine. Our challenge was to transform the space into upshot of this approach is a working environment that one that reflected Coca-Cola’s place in pop culture, create meets the diverse needs of our team and helps foster an environment that promoted and inspired creativity, and greater collaboration with agencies and partners – which is had sustainability at its heart. 30 At the centre of the office, we installed a custom-built double-sided wall that expanded across three floors, We involved employees in presenting original memorabilia retrieved from our decisions about everything, from archives in the US. This in itself was no easy task, with our archivist, Justine Fletcher, hunting through neon our café to positioning the desks

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FT.COM/GPI an added benefit of moving to the West End of London. The green team’s input is visible all Sustainability sits at the heart of everything we do, and this office is no exception. But refitting an existing building over, from our solar panels to presents its own challenges. Our response was to embed the green team – our dedicated sustainability experts – the chairs made from recycled bottles into the project from the very beginning. Their hard work can be seen in everything from the solar panels that than hearing my colleagues talk about the office not produce some of our electricity to the Emeco chairs made just as a place of work but as a space in which they take from recycled bottles. This means the Wimpole Street personal pride – a home away from home. workspace truly reflects our commitment to the planet. The move here has encompassed several years of work The building has since been awarded the SKA Gold rating and 66,000 square feet across four floors – and I can safely in recognition of the sustainable fit out. say that this project was one of my most challenging, yet The office is packed with energy-saving and rewarding. But it is far from over. If I have learnt one lesson water-efficient features, including rainwater harvesting above all – and I have learnt many – it would be that a and coolers that use natural refrigerants. We looked to move such as this doesn’t end when your people come repurpose existing materials where we could – some of walking through the door. Overall, we are thrilled with our handsome timber floors were reclaimed from a our new home. We didn’t get everything right, but we are museum in Scotland and given a new lease of life. committed to keep working towards excellence. All of this attention to detail has helped create an environment where people can be truly creative, and Brenda Hofmann is director of procurement at Coca-Cola achieve their full potential. Nothing makes me happier Europe and was the project lead for the office move

PHOTO: SHOHei Tanaka wo arr find ive When social Be a d ea mor n in rt McL the Osaka, hq e collabor ua anna cit pr y belo rking The ke es fo w ur man he – ident s the times han at with busies the sa gr at Flying ea to t w te p ta hub ive r sur than of high Gabr in ve lks ho an ys Hong As HQ the economic w int bus Ko tr ng iel the tling in aZenec er re gion Baer or ac compan der tion tschi a to Ja and pan thr y mu ive st . occupiers osaka

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fT.com/gpi 1. Front of the queue The grand front osaka is a 2. massive new development owned by mitsubishi in the heart of western Japan’s most valuable Just days after his arrival as the new president of around the world to its “iWork” principle, under which staff real estate AstraZeneca (AZ) in Japan in April 2013, gabriel Baertschi are encouraged to work collaboratively in open spaces. 2. could feel that something was wrong. The location of But under Baertschi, the project gained a “significant jump Open plan the office was fine, in the landmark Umeda Sky Building, start”, says Neil Hitchen, regional director and head of 35 in the AZ offices within, gone are within a 15-minute walk of osaka’s Umeda station, the Japan markets at JLL. the walls that divided colleagues Within six months, a new location was finalised – three and in their place bright, airy busiest hub in an economic region four times bigger spaces that foster collaboration than Hong Kong or Singapore, and just an hour from floors in Tower B of grand front osaka, a gleaming new Kansai international Airport. But the building itself would development owned by mitsubishi Estate, Japan’s biggest not do. Employees of the Anglo-Swedish chemist were , and even closer to Umeda station. Within another spread over nine floors of a 20-year-old tower, with no six months the move was complete – just in time for the interior stairs, a lot of walls and cabinets dividing people, beginning of the new fiscal year in April. and little modern technology. Normally, an office fit-out of that scale would take about “We have a new vision for Japan, which is to grow very a year, says Daisuke Tanaka of the Design Studio, a Tokyo- quickly and to bring our products to patients faster,” says based consultancy that led the project. “We could not Baertschi, noting that AZ’s Japanese sales grew much tell AZ that we couldn’t do it in half the time. The team of

faster than the market last year, pushing the company up contractors – more than 100 of them – were all really Ty

three places to number nine. The old office represented co-operative; that is why we could finish it so fast.” geT

“the worst scenario... for different departments working Here the principals involved in the move – and some ka;

together, R&D working with commercial, or working with of the staff affected – offer their thoughts on the transition. na

sales, marketing, regulatory or government affairs”. Ta AZ had been discussing a move with its property agent, Gabriel Baertschi, president, AstraZeneca Japan: JLL, since November 2011, after the big earthquake earlier The reasons why the old place was wrong are much the SHOHei that year had got everyone thinking about structural same reasons this one was right. Before, cross-functional resilience and disaster planning. meanwhile, the London- working within AZ was not optimal. Every department headquartered group was keen to convert all its operations was separated by a floor, which you could only get to in PHOTOS: occupiers osaka

1.

1. an elevator. There were a lot of walls, there was clustering Tables and tablets of colleagues, you could not see people working. if you The office and its furniture wanted to interact then you had to call for a meeting, have been designed to encourage communication between and do it through outlook. There were almost never departments informal discussions happening, and the management 36 was isolated from the rest of the group on its own special 2. floor. i was left completely alone in the corner, protected Still waters – it seemed – by two bodyguards. i could feel that this build- AstraZeneca’s new premises may be right in the heart of the city, ing was never going to help us deliver our vision but they are set in a sensitively of bringing drugs quickly to patients. landscaped natural setting Katsuyoshi Sugita, head of human resources, AZ Japan: The shape of the old building is very strange. it was completed in 1992, just after the bubble economy period, so i think the designers were not thinking about efficiency or effectiveness. They just wanted to have something very different from others. it didn’t work well!

Gabriel Baertschi: i think we saw about 10 potential properties in all. our 2. main question was whether we could make the kind of office we wanted. could we put a staircase in there, for example, to provide a place of exchange where people meet and connect? Some of the did not accept that, so we were able to eliminate them. Another fixed consideration was proximity to public transport – we needed to be close to the train station. And of course, it had to be a price we could afford.

2. Ty 2.

Nariki Yamaguchi, head of markets, Osaka, geT Jones Lang LaSalle: ka;

The price was good, considering the location and the na

building grade. We think this is the bottom of the market Ta Before, we couldn’t connect with the after many years of falls in grade-A rents, which are now averaging Y15,492 ($142) per tsubo (roughly equivalent

world. Now our R&D group interacts with SHOHei to 36 sq ft) per month, including service changes. from universities in Tokyo and Nagoya now until 2017, the supply of large-scale buildings will be a little limited. We can see that the incentives that PHOTOS:

fT.com/gpi landlords are offering tenants – such as six months of my laptop, my ipad and my pHS [personal Handyphone 3. free rent – are already beginning to fall. System, a lightweight mobile on a closed wireless loop] and go to work with other teams. Neil Hitchen, regional director and head of Japan markets, JLL: Midori Watanabe, secretary, oncology and We heard, second-hand, that there was quite a lot of anaesthesia, AZ Japan: anxiety at AstraZeneca around the old building, and how As a pA, i used to spend a lot of time trying to find available it would stand up to a big earthquake. it was quite a jolt meeting rooms for my teams. Now people just use the they felt [in march 2011]. Even if there was no physical workspaces, or the tables in the café adjacent to the damage, there’s a reluctance to occupy a building reception area. Everyone has much more freedom to meet moving around metres in the sky, 30 floors up. Now they with other people in casual exchanges. are around the 19th floor of a brand new building, where the level of seismic resistance jumps quite considerably. Gabriel Baertschi: it is important for me to enter this office and see my A spokesman for Mitsubishi Estate, landlord employees. it is the same with every manager here, all of Grand Front Osaka: the offices are made of glass and very simple; we didn’t Some of our tenants moved to our building to secure want to create differentiation between managers and 3. a high level of safety in the event of an earthquake. employees. The old office didn’t have any place where Grand designs Earthquake resistant braces are fixed inside the core leaders could engage in a town-hall type setting. Here we The office and retail complex broke frame which firmly supports the building, along with have the café, which is a very informal way of connecting Japanese records when it opened buckling-restrained braces and oil dampers. But there with up to 150 people for an update, a Q&A, whatever. last year and eight million people visited within a month are other tenants who decided by looking at everything: from the high-profile and iconic nature of the building, Akiko Nakao, director of projects, to the high-quality specifications. We think AstraZeneca falls R&D department, AZ Japan: into that category. This new building has kind of forced us to get rid of old documents. Some we used to store without John Cook, project director, JLL: looking at them very much. Now i have almost no one of the factors we needed to look at was providing documents on my desk, which makes me much more back-up power generation, given the frequency of efficient in accessing key information. earthquakes and potential shutdowns. in Japan we find it’s more common for financial services to want Katsuyoshi Sugita, head of human resources, 24/7 continuity of operations, but this was obviously an AZ Japan: important consideration for AZ. They ended up installing on the first day i was so shocked that people seemed very back-up facilities on the seventh floor, on a roof area. different from the past. people used to be quiet, silent; now 37 they’re working collaboratively, and talking a lot. i also think Gabriel Baertschi: overtime work is reducing. many people are leaving the Another reason for moving was that the building was office around 6pm or 6.30pm. a little old, from an infrastructure point of view. We didn’t have all the technology we needed to connect with the Ichiro Kosen, brand manager, marketing, AZ Japan: rest of the world – such as AZtrium, which is our new video i feel like my email volume has dropped by 10 to 20 per conferencing system, where you feel like you are talking cent, because the departments are now much closer to to people in real life. Now, we can have our R&D group each other. And sometimes in email i do not understand directly interacting with universities in Tokyo, in Nagoya, in what the context is, or the urgency. Direct communication Yokohama. The other office was not set up for that; we had is so much better. a remote facility but could not put enough people in it. Gabriel Baertschi: Mohit Manrao, director, marketing excellence At the end of the day we are paying about the same department, AZ Japan: in rent as we were before – but with a brand new office, To me, the biggest effect of the move is very clear: if which feels more airy. Yes, there were one-off costs in you open people’s calendars, three months ago they were creating a new space, and restocking it with new furniture all booked, and all meeting rooms booked. Now most and new technology, but i really believe that this cost will people are meeting informally, just approaching each other be traded off very quickly by the benefits. i think that the and taking decisions. if you have your key stakeholders transformation we’re undergoing here is not just the on one floor, you can just hop from one place to another. transformation of an office, but a transformation of the Depending on what the day looks like, i can pick up way we want this company to operate.

I

on second thoughts

Second-tier cities are grabbing headlines and inward investment as they attract companies and employees drawn by enhanced infrastructure, lower living costs and simpler regulatory laws, writes Liz Bolshaw

The road to riches Tel Aviv is the best connected of Israel’s cities, and occupies a frontier position facing the markets of Europe and the Americas PHOTO: dreamsTime occupiers second-tier cities

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“The world isn’t flat,” wrote Edward Glaeser, a Harvard Interest in secondary cities is not just a Chinese 1. professor of economics in his 2011 book The Triumph phenomenon, however. According to US Census data Brisbane is buzzing Described as one of the world’s of the City: How Our Greatest Invention Makes Us Richer, released earlier this year, Austin, Texas, has seen the most dynamic cities, with plentiful Smarter, Greener, Healthier and Happier, “it’s paved.” country’s biggest growth from domestic migration resource assets Today, 54 per cent of us live in cities compared with (up more than 5 per cent) while New York City has shrunk just 10 per cent in 1900. By 2030, the World Health by nearly 2 per cent in the same three years to 2013. 2. Organisation estimates that more than 5bn people will Rosemary Feenan, director of global research at the China crisis Residents complain that life in 40 be urban dwellers. Is this unprecedented rush to the city, advisory firm JLL, is unsurprised. “Up until recently, 50 per Beijing is blighted by pollution and though, confined to the world’s megacities – those with cent of all property investment across the world was in only congestion populations over 10m – or is the rise of the second-tier 30 cities and those were dominated by supercities such as city a new feature of urbanisation? Tokyo, London, Hong Kong and Paris,” she says. “Since the 3. Historic charm What constitutes this second tier is subject to some financial crisis we have seen almost 60 cities move in and Multicultural Brussels sits at the debate. “Many of the second-tier cities in China are larger out of the top 30 places and there are several second-tier heart of Europe and celebrates its than capital cities across the world,” says Stanley Chang, cities in that list.” Austin was highlighted by the firm’s 2013 diversity, past and present managing partner for advisory services, China, at global Cities Indexes report as a “city to watch” together with accountancy group Grant Thornton. “Chengdu, for Brisbane, , Nanjing, Shenzhen and Tel Aviv. 4. Sophisticated sales example, has a population of 14m; this is not a small city.” Property adviser DTZ has been working on a global Luxury fashion brands are investing China’s second-tier cities dwarf the rest of the world’s occupancy cost that factors in not just rent per square in second-tier cities; Gucci’s flagship not just in size but also in youth. “If you look at the top foot, but costs per work station that include operating Asian store is in Jing-Jin 20 cities in terms of growth, they will be second-tier cities expenses, local taxes and wages, to help inform relocation 5. in China,” says Darren Rogers, a partner in the real estate decisions. “It’s important to compare apples to apples,” says Wonderful, wonderful team at law firm King & Wood Mallesons SJ Berwin. Hans Vrensen, global head of research at DTZ. The costs Copenhagen routinely tops surveys “The theme that underpins second-tier confidence can be matched to productivity per worker. “This relative of the world’s happiest cities, and is is infrastructure; where there is national investment productivity index,” says Vrensen, “identifies a sweet spot cosmopolitan and convivial in high-speed rail and road systems, then companies tap between low costs and high output. In the US, cities like 6. into those cities, where wage costs are lower,” he says. Austin, Phoenix, Atlanta, Chicago and Boston do well.” Austin’s powers Developers and retailers seeking commercial In Europe, the relative productivity index throws up The Texan city has seen the largest property outside the overheated markets of the some surprises. Copenhagen, Brussels, Lyon and Rome all growth in domestic migration, as OOmberg bl world’s capitals have flocked to these smaller cities – score highly while London, Stockholm, Zurich and Geneva NYC’s population shrinks and not just the larger high street brands. Joe Magrath, rank lower. “If you are a US or Asian multinational looking director of development (China) at property investor to have a first foothold in Europe, your instinctive landing reuTers;

TIAA Henderson Real Estate says, “What is most place might be London or Paris. But we think that for some, ; interesting is that the level of sophistication is rapidly Brussels might be a better choice,” says Vrensen. Ty

moving upwards. While the likes of H&M and Zara have geT been all over second-tier cities for a decade or more, during the last five years we have seen exclusive luxury Developers seeking property outside fashion brands come into high-end retail centres: Prada, Bulgari, Fendi, Jimmy Choo and Longchamp are all here.” the heated markets of world capitals dreamsTime; Gucci’s largest outlet in Asia – at 800 sq m – is located not in Beijing or Shanghai but in Jing-Jin. have flocked to these smaller cities PHOTOs: FT.COM/GPI 4. 5. 6.

The Economist Intelligence Unit’s Global Liveability The popularity of these cities is Ranking points to a number of advantages, particularly to occupiers, of second-tier cities. The top cities “tend fuelled by under-35s, who want to live to be mid-sized, in wealthier countries with a relatively close enough to walk or cycle to work low population density”, it notes. The popularity of big – but not mega – cities is being fuelled partly by millennials (those under 35) who “want business. Eindhoven, in the Netherlands, has one of the to live close enough to the office to walk or cycle to world’s highest patent intensity scores by population, for 41 work”, says Vrensen. “The city centre is not the cultural example,” she says. “This has marked it out for innovation wasteland that is suburbia.” Second-tier cities can offer the and popularity as a centre of the knowledge economy.” buzz and cultural amenities that young, skilled employees Another advantage of second-tier cities is that want – without the traffic jams, unaffordable housing costs they tend to be pro-development. “There is an appetite and pollution. The idea of working in a capital centre to make things happen,” says Rogers. He cites the then enduring an hour or two’s long commute to a leafy headline-grabbing investment of £800m by the Beijing residential suburb is anathema to this generation. Construction Engineering Group into the development Success is also in part a function of the failure of some of Manchester’s Airport City project. This was supported by capital cities to manage their own growth rates. Beijing’s its designation as a UK government enterprise zone, with congestion and its inflexible rules for those without “hukou” business rate discounts, super-fast broadband connectivity (domiciliary registration) that make house and even car and simplified planning procedures. And also, says Rogers, ownership a protracted process that can take up to five by the participation of other private investors. years to complete, is pushing the middle classes towards The £850m development of St James Quarter in second-tier options, says Chang. “If I didn’t have to be Edinburgh by TIAA Henderson Real Estate, the landlord in Beijing for work reasons, I wouldn’t want to stay here. of an existing shopping mall, is one of the largest It is simply too crowded. It affects everything: you don’t regeneration schemes of its kind in the UK. Here, in an go to the restaurant across the city because the traffic area that had become run-down and unloved, the 1.7m is so terrible, so you eat closer by.” sq ft scheme will offer a mid-market hotel, up to 250 new The second-tier city is not a universal success story, homes and a million square feet of retail space. The project however. “High investment risk and poor infrastructure is supported by £61m of city council funding towards combine to hold cities in Africa back,” says Feenan. “But infrastructure improvement. “Being able to occupy exactly improving education and the sheer dynamism of a young the building you want”, says Rogers, is far more likely in population makes Africa the continent to watch. It will second-tier locations. “Sustainability, energy efficiency and take time, but it will come.” corporate responsibility are increasingly important.” Governance also has a big impact. “Germany’s federal Where once cities competed with each other, we organisation makes its regional capitals far more important can now see city clusters or networks growing up, adds than the second-tier cities in more centralised countries Feenan, citing the Mumbai-Bangalore economic corridor such as the UK, for example,” Feenan adds. A city’s ability that is helping put cities like Kolhapur, Haveri and Tumkur to specialise, to offer world-class research and academic on the map. “However, just because there is good value in facilities and business-friendliness are also vital, she the second tier,” says Vrensen, “doesn’t mean we forecast says. “Boston and San Francisco have mastered the art that these cities will overtake capitals. Centralisation is a of permeability between research establishments and runaway train which seems hard to stop.”

FT.COM/GPI developers kate allen

dependable set of regulations, making them more attractive for investors. the reit stuff In the aftermath of the financial downturn, Europe’s property industry faces a similar opportunity, says Lutzius: When Europe’s second-largest property property market when it drove a two- “We know listed real estate has been company, Klépierre, announced in July decade-long period of acquisition and successful in both the US and Asia, and that it was to acquire Dutch shopping mall consolidation. It is an example of what a we think it will be in Europe too.” landlord Corio, the deal was significant not listed property sector can achieve. Investor demand is also driving just for the world of retail. The focus on retail landlords has initial public offerings. With interest rates The Klépierre-Corio merger will intensified. “Shopping centres are the around the world at historic lows, many create a pan-European chain of shopping canary in the coalmine of listed real of the largest investors are struggling to centres, and give retailers co-ordinated estate,” says John Lutzius, managing find decent yields. Real estate is one of exposure to the continent’s shoppers. It director of US-based analysts Green the few sectors where a 6 per cent yield is the first time that property behemoth Street Advisors. “They benefit from scale is considered normal, not ambitious. Unibail-Rodamco has had a competitor and act as a clear portfolio of assets.” “Big global institutional investors since it too was formed in a merger What shopping centre owners are such as Norwegian sovereign wealth seven years ago. doing today, other parts of the European fund Norges are increasing their Klépierre’s move is the first in an property industry may contemplate exposure to real estate, and if these anticipated wave of consolidation in the tomorrow, says Lutzius. One catalyst is conglomerates want to invest huge European listed property sector. This the wider economy. The US listed sector amounts then they need to use the could transform the current small-scale, emerged out of the savings and loan listed markets,” says Charls. fragmented marketplace into something crisis of the late 1980s, helped by the The first signs of growth in the more closely resembling the commercial evolution of real estate investment trusts. European listed sector are emerging, 42 real estate sector of the US. The crisis forced distressed US investors as many of the biggest companies In global terms, Europe’s publicly to shed property assets cheaply, making are choosing to specialise in particular listed property industry is small. Just it possible for listed companies to grow sub-sectors of the market. European 6 per cent of European real estate is rapidly. And Reits (introduced in the US countries are also adopting Reit regimes: publicly owned, compared with 11 per in the 1960s and refined over subsequent Spain introduced one in 2009, Ireland cent in North America and 21 per cent decades) bring tax incentives and a last year, and last month Italy announced in Asia-Pacific, according its own plans. As a result, there has been to the European Public a flood of IPO activity, first in Ireland and ahead of the curve Real Estate Association The Emporia retail then, earlier this year, in Spain. “Within (EPRA), an industry body. complex in malmö, the next year we should see a much “The European listed Sweden, which bigger Italian market,” Charls predicts. market is underdeveloped,” welcomes 25,000 And EPRA forecasts that European visitors every day notes Philip Charls, chief companies will grow to 18 per cent of the executive of EPRA. Analysts world’s total listed market in the next two and investors have long years, up from 15.7 per cent today. argued that European Europe is still held back, however, by firms must consolidate to domestic institutional investors; most create sufficient scale to major players come from the US or become more appealing Asia. European institutions, by contrast, to investors in the listed “haven’t embraced listed real estate”, sector. Klépierre’s move says Lutzius. “For the sector to do well, means that many other we need to do better at convincing local companies are now investors that this is a good way for

contemplating whether them to get exposure to property.” y

they too should seek bibb acquisition. Kate Allen is the FT’s property charlie

It is no coincidence correspondent ; that Klépierre’s biggest shareholder, Simon

Shopping centres are Wretling Property Group, is also

the largest shopping mall the canary in the coalmine hans s: operator in the US. Simon of listed real estate to

shaped the US retail pho

FT.COm/GPI

PHOTO: GETTY estate school

Mark Preston has worked for the ’s Grosvenor Estate ever since he graduated, rising to become group chief executive. He tells Sarah Townsend about looking after the grand stuccoed squares of and while creating an international portfolio Photograph by Charlie Bibby interview grosvenor estate

1. Standing proud Mark Preston photographed in Duke Street, Mayfair, at one of the Grosvenor’s many properties

2. Global HQ The heart of the billion-dollar empire is located – naturally enough – on Grosvenor Street

3. Public realm Brown Hart Gardens, the terraced square that the estate recently transformed into a landscaped park

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Mark Preston In the heart of Mayfair is a square called Brown Hart cV highlights Gardens that includes a raised terrace built to cover the Duke Street electricity substation in 1906 and subsequently Born: abandoned. This year, the terrace was resurfaced, 47 20 January 1968, Westow, North Yorkshire landscaped and transformed into a public garden with trees, plants, a café and outdoor food market. Along the education: east of the square, another development is nearing com- Bramcote School; Eton college; pletion: the conversion of a striking Art Deco garage into a Reading University (BSc Hons Land Management) five-star hotel, the Beaumont, that opens this month. Career: The two schemes are examples of the ongoing Group chief executive, (2008-present); rejuvenation of the Duke of Westminster’s 300-year-old chief executive, Grosvenor Britain & ireland (2006-08); Grosvenor Estate, which began in 1677 as 500 acres of president, Grosvenor USA (2002-06); group fund management director (2000-02) land including Mayfair and Belgravia. Today it is a £175m private property firm with £11.8bn of global assets under non-executive directorships: management and £5.8bn of directly held assets. Trustee, Westminster foundation; Driving the redevelopment is Mark Preston, group chief non-executive director, Persimmon; executive, whom i meet in Brown Hart Gardens where he board member, ULi Greenprint Advisory Board; board member, The University of cambridge Land Economy Advisory; is being photographed for this article standing on a plinth board member, The Association of foreign investors in the middle of the terrace. His communications director, in Real Estate; fenella Gentleman, turns to me and says: “He’ll hate non-executive director, Sonae Sierra SGPS being on show like this. He’s quite a private person.”

Favourite city Preston celebrates 25 years with the company this San francisco week – something he says is both good and bad. Good, because having worked his way up the ranks since Favourite film graduating in 1989, he knows exactly how each part of the Where Eagles Dare business works. Bad in that he has no other experience to Favourite book draw on, save the knowledge and perspective he acquires Dreadnought, by Robert Massie from sitting on many outside boards and bringing in a diverse mix of staff. He became group chief executive six Favourite building years ago, just after the financial crash. The olympic Park Velodrome (Hopkins Architects) “The Lehman shock was a month into my tenure and bibbY Professional role models i had to hit the ground running,” he says, once we are Rod Kent for his brilliant business mind; settled in a meeting room at the company’s Grosvenor and Robin Broadhurst for his supreme property professionalism Street headquarters. “it was clear to me that the usual cHarliE chain of command and procedure were not adequate for the speed and clarity required at that extraordinary time, PHOTOs:

fT.coM/GPi interview grosvenor estate

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when people didn’t even know whether their cash was safe in the high street banks. i adopted what i call the traffic light system. Red here, green there and almost no amber anywhere. This was not a time to be equivocal.” Preston’s strategy helped keep Grosvenor afloat during 48 the most turbulent years of the recession. Another reason the company was less exposed was its global reach, which helped minimise risk. “Given that we have just one shareholder, the Grosvenor family, which invests much of its wealth and assets through this company, it behoves me 1. to give them as much diversification as i can,” he says. Big in Japan Grosvenor has reported steady growth in revenue and View from The Westminster, a 99-unit apartment block overlook- returns since 2009. The latest annual results – published in ing Roppongi Hills in Tokyo April and covering the period to March 2013 – show returns 2. of 9.7 per cent, up from 7.2 per cent the previous year, with 2. revenue profit before tax at £175.1m, up from £84.5m in Fab floors 2012. funds have continued to rise in the past five years The estate invested £500m to create Liverpool one; at 42 acres, and now stand at £3.5bn, their highest level to date. it is the 10th largest open-air retail A broad international reach in a diverse range of sectors centre in the world – from residential to industrial – has been a key feature of the Grosvenor strategy since it entered 60 years 3. In tiers ago. “When some things are down, others are up,” says Ambleside Village is a massive Preston. “We get a less volatile picture in our returns.” mixed-use shopping and residential one of Preston’s peers at this level of land manage- scheme in ment is Hugh Seaborn, chief executive of . He speaks approvingly of the new directions Preston has taken in terms of investments: “Mark’s team is increasingly pioneering in the property industry. inevitably, this is one of the organisations that others, like ourselves, look at to cross-check and see if we are keeping up.” Preston is keen to stress the increasingly global nature of the company, split equally in terms of assets between the UK and the rest of the world. “People have a great interest in Mayfair and Belgravia, and, although i’m not denying the importance of London as our most valuable asset, it doesn’t fully reflect what we are now.”

3. The company has steadily increased its presence overseas, with the exception of Australia where it closed

fT.coM/GPi its division in 2011, and remains active through indirect ‘The Lehman shock was a month into investments only. Grosvenor appointed a new head of the Asia-Pacific business last month, Benjamin cha, who will be my tenure. I had to hit the ground running its second chief executive in 20 years and “comes with new – it was not a time to be equivocal’ ideas and perspectives”, says Preston. Elsewhere, notable global schemes include Ambleside, a mixed-use scheme in Vancouver; 1645 Pacific Avenue, an upmarket penthouse complex in San francisco; and The acres of land in Bermondsey last year – an uncharted Westminster, a 99-unit apartment block next to Roppongi location for us – and plan for 1,200 new homes. PRS is Hills in Tokyo. The group also has ambitions to invest in definitely part of our thinking there. The densification of emerging markets such as sub-Saharan Africa. Preston our cities is inevitable as the population grows – derelict says it is researching several fast-growing cities, such as and underused land must be brought into use.” Accra, with a view to “dipping its toe in the water” with The company has 500 rental units across Mayfair a small investment – likely to be in the shopping centre and Belgravia and the sector lends itself to the long-term sector – in the next year. “Africa is the world’s last great interest Grosvenor seeks. “High-end residential in London is urbanisation story, and we want to be part of that,” he says. flipped very quickly; there’s a sort of impermanence to that sector which is less attractive to us.” Grosvenor sold £240m ark Preston travels. A lot. Between now and of top-end residential in London last year in response to christmas, he is scheduled to visit Hong Kong, concerns that the market was overheating. But Preston Tokyo, San francisco, Paris and Porto – “at insists that there are no plans to abandon the sector. Many given time there’s a pretty decent chance “We still have £1bn of luxury residential here and believe i’ll be going to, at, or flying back from some far-flung London’s vibrancy and advantages are as powerful as ever.” destination”. This doesn’t bother him. His father was a Grosvenor’s London heritage has also proved a soldier and the young Preston spent much of his childhood draw for overseas investors familiar with Mayfair and living in army camps across the world. Today, he lives with Belgravia, and intrigued by the prospect of doing business his wife and three children (aged nine, 13 and 15) in rural with a historic English institution. Notwithstanding any North Yorkshire, but spends most weeknights in London frustrations about being known principally for stuccoed as well as many weekends away on business. His most Georgian façades and grand Mayfair squares, Grosvenor is memorable overseas holiday was to cambodia in 1996 unlikely to distance itself from that heritage. “That would be when it was only just safe to go; in terms of professional a strange move,” says Preston, whose priority nevertheless trips it was Beijing, where he took the whole Grosvenor is to continue to diversify. board for a week in 2011 and “attempted to get under cadogan’s Seaborn concurs, saying: “it is quite different the skin of that fascinating country”. from the other landed estates in that it has had this global 49 Learning how to do business in other cultures is reach for a long time, which has become part of its pedi- crucial, he says, recalling an incident that took place when gree, though the London estate is very, very significant,” he he moved to california to run the US business in 2002. says. “for Grosvenor, the future will be about maintaining “i commented to an American friend how naive i thought a balance between widening its international reach while his fellow countrymen were, for always asking waiters to continuing to invest in London.” recommend what was good from the menu. Surely, i said, they will simply recommend the fish that is going off? it was only when i learned that waiters in the US keep most 1. or all of the tips left to them, while in the UK most goes Square roots to the house, that it dawned on me they are absolutely Grosvenor Square was developed motivated to give the ‘right’ answer. in the 1600s; here it is pictured “Two lessons from this: first, take great care in using as it was first laid out your home-country yardstick to make judgments elsewhere and, second, incentives drive behaviour.” Talk of moving into other global markets does not necessarily mean a retraction from the UK, Preston insists. “While international expansion means that, in percentage terms, the UK share is likely to fall, it does not mean in value terms that it won’t continue to grow. Because of the nature of the group, we can use our retained profits to service overseas without denuding our London heartland. The London estate is undoubtedly a very stable, powerful asset in the group’s balance sheet.” He points to continued opportunities for Grosvenor a brief history of the estate to invest in its London estate, in particular through public realm improvements – such as Brown Hart Gardens – and the Grosvenor estate began as the Manor of ebury, a 500-acre parcel of land office retrofits including 65 Davies Street and 20 Grosvenor north of the river thames. It was inherited by Mary Davies, who married sir thomas Street. But there are also new commercial opportunities, Grosvenor in 1677. the land remained largely untouched by the Grosvenor family most notably in the private rented sector (PRS). until the 1720s, when they developed the northern part – Mayfair, around Grosvenor TY

“We want to help address the housing crisis in London, square. a few generations later, in the 1820s, the focus moved south to what is now GET which comes in part from a lack of rental accommodation Belgravia. Later in the 19th century, the area of Pimlico was developed before being for mid-market occupiers. That’s what caused us to buy 12 sold in 1953 – the year of the estate’s first overseas property investment. PHOTO: PHOTO: dreamsTime building confidence

Chicago’s real estate market is booming – there is a real wind in its sales. With $3bn of investment last year and new skyscrapers underway, the city is on the up, writes Neil Munshi

Temple to tech The refurbished Art Deco warehouse that has become a hub of digital creativity, attracting the likes of Motorola, Yelp and Uber. Other tenants of the city such as Google and Twitter are contributing to the creation of Chicago 2.0 developers chicago

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In 2017, for the first time in eight years, Chicago JLL. He led a $300m debt financing round for one will see tenants move into two brand-new office buildings. of the two forthcoming properties announced earlier The launches of these towers – located next to each other this month – the 53-storey 150 North Riverside. The on a picturesque bend in the Chicago River – are seen other new-build will be called River point, and is under as a major sign of economic recovery in the third-largest development by Hines. During the second quarter of US city, of the resurgence of Chicago’s downtown area, this year, downtown Chicago saw a 13.9 per cent and of the changing tastes of young workers across vacancy rate, compared with 23.7 per cent in the suburbs, America. Their delivery in three years will, according to according to JLL data. local developers, be the first in a string of new buildings The financial crisis arrived as companies across welcoming tenants, as the Windy City’s commercial sectors continued to increase their use of open plan property market rebounds from the recession. layouts, reducing the number of square feet dedicated to Last year, the city saw 217 “major business expansions”, each employee. When times got tight, those companies comprising 4.6m square feet of added space, over 21,000 “jammed more people into the same space to the point new and retained jobs and $3bn in investment, making that they can’t do any more”, says Hendrickson. it the second-most active central business district office Now those companies need new space that can market in the country, according to World Business accommodate their increased headcounts, as well as Chicago, an economic development organisation. manage energy costs more efficiently, and include the In recent years, major corporations including United latest in amenities and technology – the sort of elevators, Continental and Hillshire Brands have moved from HVAC, wiring, windows, health clubs and restaurants that sprawling campuses in the suburbs into the city, where they cannot find in the generation of buildings that topped Archer Daniels Midland, a $32bn food processing and commodities trading company, is also set to move this year. According to Real Capital Analytics, commercial property sales volume is on pace to hit its highest annual Last year, the city saw 217 level since a record $22.5bn in 2007. “By the time [the two new buildings] deliver in major business expansions, more 2017, Chicago’s overall vacancy rate should be single than 21,000 new and retained jobs, digits for the first time in a long time [since about the late 1990s],” says Dave Hendrickson, a manager at and $3bn in investment

fT.COM/GpI out in the 1980s. As a measure of just how in-demand 4. more technologically advanced offices are, Hendrickson notes that those built since 2001 – which include the latest technology that Chicago’s office buildings currently have to offer – are 95 per cent occupied. John O’Donnell developed the 1.2m square foot new-build at 150 North Riverside. He says the growing momentum in downtown Chicago is a reflection of trends being seen throughout major US hubs. “Chicago, like many other cities around the country, is going the way of Europe, where people want to live closer to the centre – particularly 3. the young people,” says the veteran Chicago developer. Young, talented workers are starting families later in life, eschewing the suburbs in favour of the city and driving 1. less as a result – a reversal of the trends seen during the Cyclic shifts 1980s and 1990s. Now the best new talent is demanding The regeneration of downtown is designed to draw in young new more central locations, with easy access to public transport. talent, who value greener city living Nowhere is that more evident than in Chicago’s burgeoning technology sector, led by Groupon, the $5bn 2. ecommerce deals company. That also includes 1871, the Extreme makeover The once-derelict fulton Cold tech innovation incubator that anchors the local start-up Storage building has been scene, and has created more than a thousand jobs in transformed by developers Sterling two years. Its headquarters are on the 12th floor of the Bay; Google is its largest tenant iconic Art Deco building the Merchandise Mart, which was historically the home of Chicago’s wholesale goods 3. Upwardly mobile business. Now it houses the likes of Motorola Mobility Motorola is one of several high-tech and the tech-based trading firms Jump Trading LLC and firms to move into refurbished ThinkorSwim, while the online reviews giant Yelp is due to downtown warehouses move in soon; the building boasts a 3 per cent vacancy 4. rate. The same is true for buildings throughout the River Tower of strength North and West Loop neighbourhoods, once thought to be 150 North Riverside – a new either too industrial or too seedy (River North was once the $500m, 53-storey skyscraper – will city’s red light district), which have recently become home rise 700 feet above the river to the city’s start-up scene. Developer Sterling Bay is the leader in refurbishments geared at the tech world, repurposing industrial warehouses into loft-style spaces crammed with the sort of amenities new tenants such as Uber, Twitter and Google expect for their Midwestern HQs – and are used to in their native Silicon Valley. “It’s extremely competitive for engineering talent, so employers have to make sure they’re in the right location with the right amenities,” says Andy Gloor, manager of Sterling Bay. That is one of the main reasons that Gogo – which provides the technology for in-flight Wifi – will be moving into the West Loop section of the city, just west of downtown, says Steve Nolan, a spokesman for the company. “It’s really to attract and retain high-tech-type employees and engineers, front-end developers – those whose preference it seems nowadays is to be located centrally in downtown Chicago,” says Nolan. The office

ners will also be near two of Gogo’s key partners – Boeing and rT United Continental. Pa Steve fifield, another local developer, says the emergence of Sterling Bay in the tech space has forced TscH other players to up their game. “We have good tech job

gOeT growth, but more importantly than that, it’s influencing ;

Ty how others are using their space,” he says. “The existing landlords in Chicago [are] putting balconies in, roof decks; geT our lobbies look like hotel lobbies, with Wifi and couches.” fifield has created around 8m square feet of office space in the past 30 years, although no new-build since reuTers; 2007. “The market was very slow,” he says. “But the fact that there are two buildings ready to go… portends more new construction and development.” PHOTOs: developers design one

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break down the work cubicle

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the office is a much-derided institution, writes Edwin Heathcote. the adjustable in height so you could sit or hype once promised that, as mobile working, laptops, phones and stand and work, and were very deep so tablets freed us from the tyranny of the workplace we would drift away each desk could become a meeting table. colleagues could just drop by without from the office, and start to work from the beach or garden instead. yet having to make an appointment.” it has never quite happened – somehow the office remains as pivotal as this spontaneity was the inspiration it has always been. Except that we are now expected to work in trains for a range that is based around a height- and on planes, on holiday and in cafés – as well as in the office. adjustable, broad white desk with curved edges fixed to a low box containing all 55 But the idea of mobile working – of not Béhar) to reinterpret office furniture for the cabling and storage. colourful being chained to a desk – and of the the demands of the digital, mobile age. screens curl round the back of the office as a place you might actually “for most people,” Hecht says, “work desks implying – rather than defining want to be, has made an impact. those is a means to be able to live. So why can’t – a more personal physical space. the tech firms with their ping-pong tables we have a workplace that we live in too? boxes (which do away with the sub-desk and garish sofas, their shabby chic and We started thinking autobiographically landscape of legs and sockets) can be mismatched funky furniture, have made about our own studio,” he continues. extended to create benches with inbuilt a difference to what we think the office “Why is it that we come in to work at all? lamps to accommodate informal chats, could be. And as people become more i could do everything i do on a laptop. removing the need for sofas and other important than products (which are now the reason is to be with other people.” pieces of furniture around the office. the made elsewhere in the world) there has it is true that collaboration is at the range can be supplemented with been some recognition that the office heart of most contemporary business screens and room-divider shelving for might be due for a change. mantras. Yet the standard furniture more private spaces. All these permuta- Workplace furniture, however, has focuses on the individual space, the tions allow the creation of a landscape seemed to be as stuck as the idea of the Dilbert-derided cubicle. So how does – one much related to the 1950s idea of boring beige office. there might be a industrial facility’s new range, named the Bürolandshaft (“office landscape“) few more ergonomic chairs, a few more “Locale”, address the demands of the developed by the Quickborner studio in sofas and garish break-out spaces, there contemporary office? germany. Herman miller responded to might be hot-desking as a cover-up for “We began by thinking that all work is these ideas in the 1960s with the “Action a desperate lack of space, but the office social,” Hecht tells me in his clerkenwell office” by designers george Nelson and remains recognisable from the spaces office, “and we wondered whether it Robert propst, but this pioneering work where we worked a century ago: a desk, would be possible to create a series of somehow mutated into the inaction a keyboard, a phone, a chair. neighbourhoods in the office, groupings office of the constraining cubicle system. “office furniture seemed as if it had of people you feel good with.” 1. So Hercht’s new offering is quietly y Elegant and practical been left behind,” designer Sam Hecht Hecht’s team visited Scandinavian radical for a company that has always the Locale range was cilit tells me. Hecht, whose company indus- offices deemed to be productive and been concerned with design. it is a range fa inspired by designs of the trial facility has advised furniture giant enjoyable, to find out how they had Swedish work environment doesn’t attempt to change everything trial Herman miller for many years, was com- achieved there – in design terms – what and doesn’t attempt to innovate through 2.

indus missioned by the company as part of its they have done for domestic interiors. appearance alone. Elegant, self-effacing Multi-tasking s: initiative “the Living office” (alongside “the important thing was that everyone and practical, it might yet, however, to Adjustable seats and desks designers including Bruce mau and Yves pho felt a sense of control. the desks were create a sense of control change the way we work.

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56 recipe for regional flavour

2. Merrick Nick : to pho

ft.com/gPI Strong business links to new markets worldwide and growing global information technology feeds the frenzy demand for unique buildings and physical environments mean that and high expectations of quick turnround 21st-century building designers need to be ‘multilingual’ in their time. this is a challenge in the design process in which ideas need time to approach to creating meaningful and memorable solutions develop and mature.

By Daniel Ringelstein, director, Skidmore, expect a certain level of quality. However, The need for face-to-face interaction: Owings & Merrill, the architecture, interior in other places clients lack experience While global communication is advancing design, engineering and urban planning firm in developing a proper project brief, by the nano-second through online requiring the designer to help illustrate web-sessions and instant messaging, When working around the world for options and alternative synergies to there is nothing like real-time interaction international clients on diverse projects, extract the project’s goals and aspirations with clients. this remains the best form of agility is crucial. A successful designer from the client. dialogue, regardless of where a project is in the global workplace has to be located, but perhaps even more essential adaptable, flexible and willing to work in A desire for a strong “image”: In where language barriers make it difficult new ways. Being open-minded and able more established markets, quality is not to speak through a web-cam. to observe the world carefully to draw necessarily tied to the exterior shape from local diversity are essential as these or image of a building. But in places Engagement with the local community: can become the essential elements of where wealth is new and an insatiable many international projects are driven a project’s particular design “language”. desire to make a mark is inherent, clients and won via design competitions. the Each project has its own story, including often demand more from the building’s best projects are delivered when the end the characters and circumstances that expression on the skyline, or within its user and local community are directly have enabled them to be realised. And urban context. engaged and involved in the process, while it is often hard to look back and irrespective of location and cultural biases. generalise, common and contrasting Aesthetic tastes: Regional tastes can 57 1. themes prevalent in global design work, be as diverse as the populations within Grand designs The need for a local partner: A critical there are certain universal strands. them. these tastes can drive not only a terminal 2 at chhatrapati component in delivering large-scale building’s third-dimensional form but also Shivaji airport in mumbai, complex projects worldwide is to develop Variations between international colour, materiality and even its viability as inspired by the form of ties to the place where it is located. traditional Indian temples regions: Differing geographies mean an efficient development model. this can be a local architect partner, different cultural traditions and tastes. 2. a government agency facilitator, or this applies to local languages, regional Delivery of quality infrastructure, patterns in the sand someone on the client side locally that cuisine and historic architectural styles. urban environments and the built View from the Burj Khalifa the designer can connect with to ensure in Dubai, the It also applies to contemporary design environment: With the world rapidly tallest man-made the core idea of a project resonates. challenges. When working for clients in urbanising, people’s understanding of the structure in the world It is not always about the end product; locations throughout the world, inherent critical solutions to create more liveable it is also about the people you meet and differences become apparent. city environments varies enormously. In 3. work for. Developing the relationships many regions, a car-dominated society rise again with all the stakeholders – client, one World trade center Understanding the complexities of prevails, leading to a certain suburbanism is now New York’s tallest community, developers – involved in the large-scale projects: As technology and an often anti-human built form. In skyscraper project is critical. has advanced, so has our ability to other places, the character and quality of solve complex problems in the built city infrastructure is so paramount that a 3. environment. While significant projects building’s design must adapt to, engage are underway in some of the most with and enhance its local urban context remote and underprovided cities in – or the project will fail. the world, the most complex are being delivered by a small percentage of Common themes regardless of local/ high-end clients. the learning curve is regional desires: In many cases, the steep in many regions to deliver projects challenges designers face in day-to-day of exceptional scale and mixed-use work are exactly the same, regardless of complexity. the project’s location on a map.

Being able to define the project brief: Demanding clients and expected many clients know exactly what they turnround time: No matter where want, particularly in mature markets in the work is internationally, clients which office tenants or residential buyers have become very demanding, and

ft.com/gPI topping out michel mossessian

an urban village then you end up condemning yourself to the suburban, in praise of profit despite being in the city centre. It’s important to remember that it’s not the economy that starts the city off, Michel Mossessian is a French architect who lives and works in it’s culture. If you provide a place where london. He studied at cooper Union in New york, then Harvard, and people enjoy being and meeting, they worked in chicago for SOM. He founded his practice in london in will do business there. The two models 2005 and completed the dramatic carmine building at Paddington for me are Venice and New York, hubs of basin in 2009. He is currently working on the main square of Doha’s their respective eras. In New York there was the grid, which set the rules; from downtown Msheireb development, a regeneration of the medina in there you could go as high as you liked. Fez, and a major office complex for argent at Kings cross In Venice there was negotiation, as every building was up against As told to Edwin Heathcote longer – the answer was to give them another. In London you have this Last year I saw a presentation by the places to eat, to socialise, to entertain, same sense of negotiation. People here architect of the world’s tallest tower, perhaps some nature. Apple’s new complain that there is no vision for the about how the skyscraper is the future, HQ (currently being built by Foster & city, but there are rules. There are rights the most sustainable way of living in the Partners) is a ring with a huge garden of light and party wall agreements and city. But then you have Facebook, Google at its centre. There’s a blurring of use; through the negotiations that emerge and Apple hiring star architects to build the evolution of the office might mean from these, people are able to do huge groundscraper campuses, so that’s you end up living there too. business and make a profit. I grew obviously the future of work, isn’t it? The problem is that if, in translating up in Paris where there was a vision So who’s right? Should we stack to from the suburbs to the cities, these and the boulevards and the squares 58 the sky or stay on the ground? When campuses become exclusive, then they made for a very beautiful city, but also you take a lift up a tall building, there’s cease to be a part of the city. In London, froze it, so now it feels very old. something euphoric about it. You look everyone looks at the great estates: Whereas London feels more and down on the city and there is a sense Mayfair, Belgravia, Cadogan, and the more dynamic all the time. If a building of power. But you can’t open windows; Royal Parks. These were privately owned isn’t performing it can be demolished. you lose control over your environment. but they are generous, no one excludes London never wanted a grand plan, the If a city is only towers, it can end up like you. That sense of belonging is the most property owners said “no” when asked to Dubai, which is all skyline and no ground beautiful way of policing a city. adopt one by Christopher Wren after the – nowhere to go. As an architect, you push at the line Great Fire. Private ownership triumphed Or you can stay on the ground. between the public and the private to over the collective. The principles of That takes up more space but you are make great cities, make them more private, selfish ownership – and philistin- more connected; it forces you to engage open; often you’re fighting clients. You ism – led to the retention of the medieval with other people, inside or outside the get the sense that these huge new street plan, which is what makes the workplace. The campus evolved because buildings, like Bloomberg’s in the City of city so dynamic. Private selfishness has companies were looking at how they London, might be too exclusive. But if become a collective blessing for a city could keep people in the office for you decide to make your campus based on profit and not beauty. The city needs to establish its terms estate of play of engagement. It is a place where you The central square can walk everywhere, where you can of Doha’s Msheireb work and live well. You can easily get development, which lost but that brings rewards, chance encourages the public to come and explore meetings. The future of the office, is the waterfront maybe more like my local restaurant where there are people all day, where there are always meetings going on and people discussing business but enjoying it, a place to work and to live. y

Private ownership triumphed bibb

over the collective. Selfishness has cHarlie : been a blessing for London TO PHO

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