Designing for hotter cities

Last month was the UK's driest July since 1868. Almost half of England endured drought conditions. 

These conditions are here to stay, which means cities will need to adapt. Responses range from dystopian human-sized fridges to more practical measures such as large-scale tree-planting. The latter is likely to become an increasingly important feature of urban planning and a key differentiator for new developments. The FT Weekend covered Grosvenor's £25m conversion of Grosvenor Square into what it calls a “climate-resilient urban garden”. Around 70,000 plants and 44 new trees mean it's now almost 50% planted, up from less than 1% before. Two new wetlands and new woodland planting stretch across 15,000 sq metres.

Cities around the world are pursuing similar strategies, which are likely to reshape the character of urban neighbourhoods over the coming decade. The pandemic accelerated demand for greener environments, and generous landscaping has become an increasingly important part of residential development. At Cain International's One Beverly Hills development, which is achieving record prices on for the West Coast of America, two Aman-branded towers rise from a 17.5 acre site covered in almost 2,000 trees and 200 species of plants native to California. The landscape architects describe the continuous tree canopy that links the development as the "California drape". 

Few developments have the scale to go this far. In cities such as London, land values encourage developers to find more inventive ways to introduce greenery through courtyards, roof gardens and landscaped communal spaces. We'll have more on this – including a much deeper dive on One Beverly Hills – in our upcoming Residence Report, published next month. In the meantime, you can read last year's edition here.

Preferential loans

The Budget will take place on October 28th and it will stick to the fiscal rules, Chancellor John Healey said on Friday. Departments have been told to prepare for cuts, and the government intends to use recent changes to the fiscal rules to free up an extra £9bn, the Times reported yesterday.

Under the changes implemented by previous Chancellor Rachel Reeves, ministers can count spending on infrastructure or equity in companies as “assets” to be offset against the cost of borrowing. Some of the money could be put towards boosting housebuilding, which "could involve giving preferential loans to developers, allowing them to use sites that would otherwise be unviable," the paper reports.

That followed a separate report in the Times over the weekend, which said Housing Minister Matthew Pennycook is "actively reviewing" the return of Help to Buy, despite a housing department spokesperson insisting that "there are no current plans" to introduce a new scheme. "There is now widespread acceptance within Whitehall that the government's attempts to revive housebuilding have not gone far enough," the paper added.

In its half year results, Taylor Wimpey said it would deliver between 10,600 and 10,800 homes during its full year, within the lower half of the guidance it provided in March. Affordability constraints and increased geopolitical uncertainty has knocked consumer sentiment amid a period of rising build costs and the cost of regulation, the company said.

"We continue to support the Government's housing ambition", the statement continues. "However, without targeted demand support and viability measures to unlock delivery, weaker demand, rising costs and limited affordable housing funding risks reducing sector output and UK economic growth."

A structural feature

In the London office market, volatility is no longer being viewed as a temporary disruption, but as a structural feature of the market. Rather than waiting for perfect clarity, occupiers and investors are increasingly focused on resilience, optionality and the ability to respond quickly as conditions evolve.

That explains, in part, why take-up in Q2 reached 3.1m sq ft, up 23.8% from the previous quarter and 11.1% above the long-term quarterly average, according to Knight Frank's new London Office Market Report. Once again, quality was in focus, with new and refurbished space accounting for 69.6% of all leasing activity.

The strong performance was all the more notable given the lack of very large deals. There was just one transaction of more than 100,000 sq ft in Q2 – Anthropic's acquisition of 158,138 sq ft at 1 Triton Square, NW1 – compared with four in the previous quarter. Activity instead shifted towards the 60,000-100,000 sq ft bracket, which recorded four transactions totalling 336,372 sq ft after none in Q1.

Driven by continued AI demand across London, the TMT sector was the most active in Q2, accounting for 25.4% of leasing activity. Financial services followed with 22.1%, while professional services accounted for a further 21.0%.Alongside Anthropic's deal at 1 Triton Square, notable transactions included OpenAI's 89,975 sq ft pre-let at Jahn Court, N1, and Natixis's 88,449 sq ft letting at Thames Court, EC4.

Towering scarcity

Total availability fell by 5.8% in Q2 to 21.6m sq ft, leaving an overall vacancy rate of 8.0%, just above the long-term average of 7.7%. Vacancy for new space declined from 1.7% to 1.6%, 20 basis points below the long-term London average.

The availability of large prime floorplates remains constrained. There are just 10 newly built floors of more than 20,000 sq ft available in the City and 24 in the West End. The full letting of 40 Leadenhall and 8 Bishopsgate has also made tower space, particularly upper floors, increasingly scarce.

Development completions slowed by 23.5% in Q2 to 1.4m sq ft, although this was still 14.8% above the long-term quarterly average. Around 31.2% of completed space was pre-let, leaving 1.0m sq ft delivered on a speculative basis. The largest scheme completed during the quarter was One Olympia, W14, at 532,717 sq ft.

Looking ahead, the development pipeline under construction has contracted to 14.1m sq ft, down 9.2% over the past 12 months. Almost a quarter (24.5%) of the pipeline is already pre-let, leaving 10.7m sq ft of speculative space under construction. Based on the long-term average take-up of new and refurbished space, London is projected to face a shortfall of 10.0m sq ft by the end of 2030. See the report for more. 

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China launches global tax hunt going back decades (FT).