(BLOOMBERG) – On a chilly winter afternoon, one of the few signs of life at the Colosseum Retail Park in suburban north London is an elderly woman smoking outside the bingo hall, protective face visor slung over one arm.
The BlackRock-owned centre on the edge of a highway is now marked for demolition to make way for up to 1,800 homes in a group of apartment towers. It’s just one of more than 80 current projects in the British capital where landlords are seeking to turn dated properties into mass housing blocks – a big leap from the past decade when only seven such developments were built.
Half an hour’s walk away, shoppers at another mall are greeted with empty stores and offers of 50 per cent discounts, while the benches they once rested on are now sealed off with hazard tape. Its owner DWS Group is proposing to transform the 1980s building into a complex that includes a 26-storey housing block.
Saddled with commercial properties battered by the coronavirus pandemic, some of the world’s biggest investors are making a wager: apartment living will make more of a post-Covid-19 comeback than in-person retail.
The bet has London’s housing shortage and high residential property values on its side. But apartment rents and sales have plunged in the capital as the pandemic spurred an exodus of Londoners seeking greenery and space.
“There’s certainly a lot of them being built – I don’t think that reflects a burning demand in the marketplace for living in high-density housing,” said distinguished policy fellow Kath Scanlon at the London School of Economics. “Everything that’s happened in the last year is a real challenge for that model of development,” she said.
For many landlords, 2020 was an unwelcome wake-up call. While office owners winced at the creeping adoption of long-term work-from-home policies, retail properties were hammered as the pandemic supercharged the shift towards online shopping. Stores are emptying at the fastest pace on record, and the resulting surplus of physical shops has spurred some owners to maximise space – and profits – by building up.
There are 82 examples in London of complexes of at least 1,000 homes that are either in the planning stages or under way, according to researcher Molior London. Not all of them will be sprouting up in the near term, and some won’t materialise at all if they fail to get permission.
Still, it’s likely that swathes of London will have a new skyline by the end of this decade.
Dutch pensions giant APG Asset Management is among investors planning apartments on the site of the recently demolished Elephant and Castle shopping centre, part of a major regeneration that has been resisted by the area’s long-time residents for years.
In Old Kent Road, the first property square on the British version of the Monopoly board game, consent has been given for more than 8,000 homes on and around the south London thoroughfare.
“It’s helping hold values, knowing that we’ve got the potential to convert to residential,” said Mr Jonathan Bayfield, head of UK real estate research for Aviva Investors, which has the green light to convert a retail park in Old Kent Road into a complex including a 48-storey apartment block.
There is a crucial catch to all these plans: London apartments haven’t been a safe bet for some time. Some large builders, such as Crest Nicholson and Redrow, began pulling out of the capital in recent years as houses became increasingly unaffordable, while others resorted to bulk sales to shift unwanted homes. Developers will also be relying on rents recovering – they slumped an annual 6.4 per cent in London at the end of last year.
The public mood has also soured against high-rise tower blocks after apartment owners in thousands of buildings across the country found out that their homes were structurally unsafe, and that they would probably have to pick up the bills for repairs.
The growing focus on dangerous buildings comes in the wake of the Grenfell Tower disaster in 2017, when a fire that spread across the building’s flammable cladding caused 72 deaths.
One south London suburb offers a potential glimpse into the future. Croydon is one of the most affordable areas in the capital and homes are being built at a speed that outpaces much of the city, with towers taking up much of the suburb’s skyline. The suburb was also tarnished by a “micro-apartment” boom, where changes to planning laws allowed developers to convert office buildings into units as small as 10 sq m.
Mass development hasn’t lifted the fortunes of Croydon, where the high street was dotted with shuttered stores and empty properties during the Covid-19 lockdown. Unibail-Rodamco-Westfield and Hammerson’s plans to jointly build a new shopping mall have stalled.
Back in north London, residents are wary. Community group Enfield Society has already voiced concerns that its suburb could become the next Croydon, thanks to the scale of projects under way from the likes of BlackRock and DWS.
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