The district in London that is betting big on the return to offices

LONDON — On a recent afternoon, visitors leaving the serenity of St. Paul's Cathedral in the heart of London could barely walk a few steps north before being hit by the almost deafening sounds of a giant hydraulic drill. A few steps ahead sparks flew from another construction site.

City of London, Britain's historic financial district, is bustling with construction. The City of London Corporation, the borough's governing body, has approved 10 new office towers, including one that will be the tallest in the area, known locally as Square Mile. In total, more than 450,000 square meters of office space are under construction and as many more are planned.

The projects, which will transform the district's skyline, are a big bet on the future of the workplace after two major shocks to the commercial real estate sector: the Brexit referendum, which poured a bucket of cold water on development plans, and the pandemic lockdowns that left the city streets deserted.

The city's office vacancy rate was 9.5 percent in the third quarter of last year, research by firm JLL shows, higher than the long-term average of 5.7 percent. But for new construction, it was only 1.4 percent. Developers face a “favorable environment” despite challenges such as inflation and high interest rates, said JLL executive Chris Valentine.

The City of London Corporation is basing its growth estimates on a report that found a large expected rise in jobs in the borough would support demand for office space regardless of whether hybrid working remained the norm.

By 2040, the City of London will need 1.2 million square meters of additional office space, said Shravan Joshi, chair of the corporation's planning and transport committee.

Before the pandemic, some 540,000 workers commuted to the City. There are now more jobs in the district — about 617,000 — but fewer people go to the office. The number of people entering and exiting London Underground stations on the Square Mile is, on average, about three-quarters of pre-pandemic levels.

Although the district is still largely occupied by financial and professional services firms, new buildings are designed to attract smaller tenants, particularly technology companies. Officials are also urging developers to leave space for the public. A building, now the tallest in the City, opened with an observation gallery on the 58th floor called Horizon 22.

The City tries to attract more people at night and on weekends. It has 9,000 residents and officials are enticing visitors with leisure activities, popular restaurants like the Wolseley and attractions such as a new home for the Museum of London.

Kate Hart, executive director of the business development district where most of the towers are located, works with companies in the area, which have about 80,000 employees. The area is still littered with empty premises, including Leadenhall Market, a protected monument.

“There is a real push to get people back into the office,” Hart said.

However, they need to see a benefit to commuting to the office, he said, adding, “You can't have that vitality if you don't get that workforce back.”

By: ESHE NELSON