CROSSRAIL 2: CATALYST FOR GROWTH IN CENTRAL LONDON

CROSSRAIL 2 Catalyst for Growth in Central London

FOREWORD London’s greatest success factor is its ability to attract and retain talent, nationally and internationally. Vital to attracting and retaining that talent are great places: districts with a compelling mix of opportunities, amenities and jobs.

It is profoundly challenging to create and manage such places in London. The capital’s enviable success, its housing shortage, rising demand and a population at an all-time high are creating intense pressures on our infrastructure, and on our communities and quality of life as a result. Without new investment, infrastructure capacity will limit London’s success.

The West End - London’s powerhouse, more productive than the City of London - sits at the epicentre of these pressures.

Overturning them will require closer and more creative collaboration between Government and the real estate industry.

But bold public sector leadership must be the starting point for success. Our civic leaders should increasingly be judged on the quality of the places their policies create. They should be held to the placemaking leadership that unleashes the potential for new homes, greater opportunities, better amenities and more jobs.

There would be no bolder placemaking leadership than public sector commitment to Crossrail 2. This vital new piece of railway infrastructure would meet growing demands on our transport system, a necessary condition for London’s success. Critically, it could be part-funded by the creation of great, much-needed new places in the country’s most economically productive district the West End.

through taxes on development such as the Community Infrastructure Levy or indirectly through retained business rates, could secure the Government’s requirement that London contributes half of Crossrail 2’s cost. A growthpromoting planning regime that creates and captures value will be needed. I believe civic leaders with a placemaking vision should unleash the West End’s potential to deliver Crossrail 2.

With public sector commitment to Crossrail 2, private capital and coordination would flow into Central London, driving regeneration, creating new public realm and delivering new amenities. And with the access Crossrail 2 would bring to jobs and homes, the West End could viably support new enterprise.

The commercial development of new employment space to host that enterprise could in turn help fund Crossrail 2.

The economic case for this vital piece of infrastructure is strong, the benefits are national and the opportunity should be taken. Private sector leaders in Central London stand ready to make the case.

The right combination of value-capture models for that development, directly

Craig McWilliam Vice Chairman, Westminster Property Association Chief Executive, Grosvenor Britain & Ireland

CONTENTS EXECUTIVE SUMMARY 6 The Recommendations LONDON’S RAPID GROWTH Implications for Infrastructure and Transport Use PROVIDING FOR LONDON’S FUTURE INFRASTRUCTURE NEEDS

15 16 22 24

How the Elizabeth Line is Being Funded

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How Can Crossrail 2 Be funded?

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DEVELOPMENT AND THE ELIZABETH LINE - LESSONS LEARNED

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THE IMPACT OF CROSSRAIL 2 ON OFFICE DEMAND

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The Changing Nature of Work

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Recent Trends in Floorspace

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Potential Growth in Office Stock to 2021

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ADDRESSING THE CONSTRAINTS

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CROSSRAIL 2: A DEAL FOR CENTRAL LONDON

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6

EXECUTIVE SUMMARY London’s growth over the past two decades has been astonishing and looks set to continue over the next two. Infrastructure improvements such as the Elizabeth Line (Crossrail 1) will ensure that public transport – which most Londoners use to commute to work – keeps pace with growing demand.

But by the 2030s, without new investment, the constraints will be more severe than ever.

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The delivery of Crossrail 2, a new railway line running from the south-west to the north-east across Central London, is vital if the city is to continue delivering for the UK. Questions remain over the most effective funding model to secure that delivery. This paper examines the funding options that would flow from the intensification and development of business space in Central London.

London’s growth Following three decades of post-war decline, London’s population has been growing at an astonishing rate.

Over 1m new people – a city the size of Birmingham – have been added to its population over the last decade. Its workforce grew by almost a fifth and its economy by almost a third.

This growth has produced substantial benefits for the UK as a whole. London’s tax revenue has increased by a quarter over the past ten years, helping fund essential public services across the country. Companies initially attracted, or created, by London’s unique characteristics have invested and created jobs throughout the country.

The capital’s incredible rate of economic growth and job creation can be attributed to some of the unique characteristics of Central London. The heart of the capital enjoys a large skills base made accessible by public transport; world-class academic institutions; internationally renowned art and culture; an amenity-rich and fine grain urban setting that has adapted and evolved to host, amongst other things, cutting-edge retail and leisure; unique neighbourhoods and commercial districts that attract global talent. Together, this produces agglomeration effects that drive up productivity and innovation.

There is broad consensus that these effects – produced by companies being close to other companies – are more intense in urban centres. The sheer number and diversity of customers and employees, and the informal exchange of information, both between and within sectors, help businesses become more productive.

Within larger cities such as London, public transport plays a critical role by bringing people and companies into close contact and allowing more parts of the country to gain from the results.

The economic benefits of London’s dynamic mix fall away quickly outside the city centre. Productivity in Central London is around 40% higher than the UK average. In Outer London, productivity is about 15% above the UK average, not much higher than in the rest of the South East of England.

London has the potential to continue growing. According to Oxford Economics, the capital’s population is forecast to rise by between 750,000 and 1m over the next decade. While employment creation may reduce slightly, it is set to be twice the national rate.

This success is not guaranteed. With growth have come downward pressures on London’s infrastructure, communities and quality of life with housing shortages, overcrowding on public transport, and a shortfall in appropriate business space. Action will be needed to overturn those pressures with new public and private investment.

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Demand for business space

Demand for public transport

Continued investment in Central London’s public transport network alongside its residential, office and commercial space will be vital to maintaining London’s position as one of a small number of highly successful world cities, to the UK’s benefit.

The challenge to London’s continued success posed by growing demand for public transport must not be underestimated. Between 2009 and 2015, the number of journeys by National Rail terminating in Central London rose by a quarter (24%); for the Underground the figure was almost a third (30%).

It is almost impossible to recreate Central London’s characteristics elsewhere in the capital or UK. At the same time, if Central London becomes inaccessible, unaffordable or regarded as lacking the space modern businesses require, economic growth is unlikely to be simply displaced to the rest of the UK. Many companies will choose instead to invest in other world cities that can match their requirements.

The challenge is not just to deliver sufficient office and commercial space, it is to deliver stock in the right locations and meet the changing demands of occupiers.

London’s sectoral mix is changing. New, high tech and creative industries are increasingly driving economic growth and job creation, challenging the dominance of more traditional sectors such as financial services. This is leading to growing demand for space in areas where existing clusters are located, such as the West End and City Fringe. Other locations, such as the City Core, are adapting their offer to attract businesses in these growth sectors.

In tandem, businesses across all sectors are increasingly adopting more flexible work patterns and greater digitisation and automation. Offices may be viewed in the future more as a space for collaboration between core and flexible staff, rather than a permanent centre for a large and stable workforce. Increasingly high specifications and expectations will be set, both in terms of office accommodation and the public spaces around it.

Few occupiers today want an office monoculture. Indeed, the changes suggest that the value placed upon a mix of uses, including residential, will increase.

Transport for London (TfL) is able to keep pace with this demand through projects such as the expanded London Overground network; a substantial Tube improvement programme; the Elizabeth Line (Crossrail 1), which will add 10% to London’s public transport rail capacity; and the Thameslink programme.

But even with this substantial investment, TfL forecasts that employment growth and its associated commuting will mean that overcrowding returns to today’s levels by 2026. Between 2015 and 2050, TfL expects demand for tube and rail services to grow by 60% and 80% respectively.

Clearly, additional investment in public transport is required if Central London is to continue delivering benefits for the UK.

Crossrail 2: the answer?

The National Infrastructure Commission (NIC) has considered various solutions to the increasing pressure on London’s public transport network. It concluded that Crossrail 2, a southwest-northeast railway passing through Central London, would address three of London’s principal transport pressures, namely: the lack of capacity on several underground lines; overcrowding on key routes into London and at key stations; and insufficient transport access to areas where much-needed new housing could be provided at scale.

It also concluded that Crossrail 2 would increase the impact of High Speed Two (HS2) by allowing more people within the South East to reach the Euston departures easily, and making it easier or

more attractive for those arriving from the Midlands and the North to move on to other parts of the capital or further afield.

TfL’s business case suggests that the railway, if delivered, would unlock around 200,000 new jobs, of which 100,000 would be in Central London.

We believe success on these counts will rest heavily on a supportive, growthpromoting planning and development framework across the route, and critically in Central London, where the economic potential – and the risks of doing nothing – are greatest.

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10

Crossrail 2 route as proposed in autumn 2015

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Funding Crossrail 2 There is a broad and growing support for Crossrail 2’s investment case, including from business. That support has yet to translate into a Government commitment to this vital piece of transport infrastructure. The funding model will be key. The NIC has suggested that London should bear 50% of the scheme’s cost.

Given Crossrail 2 will be key to the success of Central London, helping meet demand for residential and business space and supporting development and regeneration, the property industry should maximise the scheme’s impact for Londoners. It can realise more of its potential and in doing so, help meet a greater proportion of its cost.

The funding model suggested in the preliminary business case for Crossrail 2 uses some of the mechanisms that were applied to Crossrail 1 (the Elizabeth Line).

London businesses and taxpayers are contributing around 40% of the Elizabeth Line’s construction costs. In addition, and as well as large individual corporate contributions, Crossrail 1’s principal funding contributions come from the Community Infrastructure Levy (CIL) and accompanying s106 payments - effectively a ‘tax’ on development - and the Business Rates Supplement (BRS) payable by occupiers. Both vary by geography.

Crossrail 2 is a more expensive scheme than the Elizabeth line and, given its route through the densely developed and historically important West End and Midtown areas, faces the challenge of attracting property-related funding at a scale not previously seen. The area lacks the large single land ownerships, such as Canary Wharf or Heathrow Airport, which contributed heavily to the Elizabeth Line.

This means that structured contributions such as CIL and BRS may have to raise even more towards the cost of the scheme.

Much of the discussion to date of development-led funding for Crossrail 2 has centred on residential property, and mostly at the line’s extremities. Even so, research by London First suggests that more intense commercial development in Central London could unlock more of Crossrail 2’s funding - it estimates an additional slice of 10%. This proposition deserves further attention. We believe certain conditions are required to secure that scale of funding from development.

First, lessons must be learned from the Elizabeth line Developers involved in the Over Station Developments (OSDs) for the Elizabeth Line felt that the projects could have extended beyond the immediate station building. The impacts of the railway, and the potential for development, should have been considered over a much larger area, given the potential impact on demand from businesses and pedestrian flows.

A geographically broader approach that encourages greater development should be taken so that Crossrail 2 can maximise its wider economic benefits and the opportunity for self-funding. Given its route through Central London, a growthpromoting development framework will be needed to unlock selective and sensitive growth that is complemented by world-class public realm.

We recommend that new and flexible planning and development policies should underpin the funding and delivery of Crossrail 2, in part by taking into account increases in activity across a wider area of Central London than just its stations.

Secondly, workspace development should be seen as key to unlocking and maximising Crossrail 2’s benefits.

Using CACI data, JLL has examined the connectivity benefits delivered along Crossrail 2’s route.

In parallel, by analysing historic and future trends in new office development, it has identified the areas where the constraints on supply are most intense. The comparison between the connectivity benefits and the constraints is mapped out below. The grey/black tones in the first map represent changes in connectivity; and the red/orange tones in the second the amount of office space delivered in recent years.

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It is expected that the transport connectivity benefits of Crossrail 2 will be concentrated and highest in a broad lower case ‘r’ shape from Trafalgar Square to Euston, extending east towards Angel and Old Street. This is where the railway is reasonably expected to provide the greatest opportunity for an increase in economic activity.

However, while the total amount of office floorspace in Central London has grown by a quarter (23.3%) since 2001, it has been delivered not in these areas of greatest expected additional connectivity (except perhaps at King’s Cross), but rather in new office districts such as Paddington and Southbank, as well as the core City of London.

Source: JLL

Office floorspace has grown by just 3.6% in the Core West End submarkets of Mayfair, St James’s, North of Oxford Street, Fitzrovia and Soho: markets which will be amongst the most affected by Crossrail 2.

The locations which would benefit the most from Crossrail 2 connectivity and market demand for office development align closely with existing Opportunity Areas (OAs) at Tottenham Court Road, Euston and Tech City. These could be reviewed and expanded after further research into the impact of the railway – and potentially even merged.

These refreshed OAs could form the geographic basis of new London Plan policies aimed at allowing the built environment to adapt sensitively and to ensure maximum benefit from – and funding for – Crossrail 2.

Source: JLL

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Supporting development on specific sites Within the OAs, planning briefs could be drawn up in collaboration with landowners, local authorities and third party experts. These would cover specific locations where there is both a strong increase in connectivity and an opportunity to improve the capacity and quality of the office stock and the public realm. The briefs would have to balance economic impact and the local context.

The Government’s emerging Industrial Strategy places great emphasis on business clusters, their locations and skills and network requirements.

The frameworks for the OAs could helpfully take account of the existing concentrations of, for example, high tech industries, and the potential links with London’s research and education institutions.

High quality developments providing more employment space and better public realm are evidently achievable in Central London. The Crown Estate’s St James’s Market demonstrates what is possible: a scheme which creates additional high-quality office and retail space, while providing affordable housing and improving the appearance and pedestrian experience of a cherished part of the West End. Crossrail 2 should catalyse similar projects in other densely developed or historic areas of Central London in need

of revitalisation. However, fragmented landownerships and small sites make this hard to replicate elsewhere in the West End, Midtown or the City Fringe, at least outside the Great Estates.

Part of the role of the planning briefs would be bringing a number of landowners and developers together to create the scale at which development with wider benefits (such as public space) is possible. This alone may make desirable improvements viable – but in many cases other measures may be needed.

Special policies, could apply within the planning brief sites, as long as individual landowners and developers comply – perhaps through formal agreements – with the wider plans.

Compulsory Purchase Orders (CPOs) could be a potential tool, only to be used in exceptional circumstances where small landownerships are preventing highly desirable large-scale schemes from proceeding. A recent example of a CPO being used to great effect is Land Securities’ Nova development in Victoria.

Both Westminster and Camden councils have townscape policies which discourage buildings rising above the existing building line. These are reinforced

by London-wide viewing corridors, protecting views to St Paul’s Cathedral and the Palace of Westminster. As a result, while some additional space can be provided in densely developed and historic parts of London by adding floors to existing buildings, only slight

increases are usually permissible. The costs involved in these extensions in complicated sites in Central London usually outweigh the value created, meaning such projects often do not make commercial sense.

Both councils also encourage residential development. Westminster’s mixed-use policy (now toned down for smaller additions) calls for any increase in office space to be accompanied by residential on or near the site.

The housing crisis is a paramount policy concern for the capital. However, prioritising residential delivery in Central London areas which are likely to see the greatest increase in demand for employment space would be counterproductive. Prioritising jobs in these locations would lead to greater benefits for all Londoners, while allowing more homes to be delivered in other areas.

Special policies could also allow more flexibility for developers in delivering the type of space that the next generation of businesses will demand. The OA frameworks and planning briefs could allow a more flexible, site-based approach to how to achieve development viability and greater employment density, bearing in mind the economic benefits of Crossrail 2.

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The business case for Crossrail 2 in Central London Crossrail 2 is a vital piece of infrastructure for London and the wider country. It can relieve pressure on existing transport networks; provide a vital onward link from HS2; and support new homes and jobs across the capital and beyond. Yet its funding remains in doubt.

The planning policies proposed in this report, when combined with Crossrail 2, would allow a greater quantity and quality of business space, in an improved public realm, to be provided sensitively in Central London. Through greater revenue raised from CIL and BRS – and wider taxation – the property sector could then pay far more towards the overall costs of the project. It would also boost the provision of affordable housing.

Indeed, if London were able to retain a higher proportion of property taxation, the sector could fund an even higher proportion of the

scheme. This could follow the model proposed by the London Finance Commission, i.e. any additional increases would be retained by the city, benchmarked against its 2017 contribution to national accounts.

It is recognised that part of Central London’s attraction as a place to work and do business is its fine-grained, mixed-use and historic environment.

With the right policies, Crossrail 2 can help provide new, world-class architecture, more affordable housing, better public space and cutting-edge office and retail space, improving rather than damaging Central London’s unique character. It will prepare Central London for coming generations of London businesses, workers and residents.

Given the potential of Crossrail 2, and with the appropriately targeted policies detailed here, the property industry can play a vital role in ensuring that the built environment can help fund a much larger share of the project’s cost.

With the right policies, Crossrail 2 can help provide new, world-class architecture, more affordable housing, better public space and cutting-edge office and retail space, improving rather than damaging Central London’s unique character. It will prepare Central London for coming generations of London businesses, workers and residents.

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The recommendations • The Government, Greater London Authority and relevant London boroughs should consider how development could be intensified in Central London, particularly in areas which would be most impacted by Crossrail 2.

• At an early stage, Crossrail 2 should start considering the impact of additional pedestrian numbers on the public realm and the demand for business space.

• The above-ground plans related to Crossrail 2 should consider a far wider area than just the station and its immediate hinterland. This means that landowners and sites need to be identified early and brought into the process.

• There could be more research into how Crossrail 2 would impact on pedestrian movements, office and retail demand and the wider built environment across Central London. This will enable a greater understanding of where policy interventions could be used selectively to stimulate appropriate development.

• The London Plan should develop a policy framework which ensures that the potential for development and more intense land use is fully realised by Crossrail 2. The existing Opportunity Areas could be reviewed in line with the impact of Crossrail 2 on connectivity and accessibility.

• Based on Crossrail 2’s effects, the London Plan and local plans could identify appropriate sites for development.

Planning briefs could be introduced aimed at creating high quality schemes which contribute to the economic density, visual impact and pedestrian experience in Central London, while contributing to affordable housing provision.

• Within the Opportunity Areas particular locations could be identified as either ‘stress points’ (i.e. where the additional footfall and connectivity produced by Crossrail 2 will create new problems) or ‘areas for improvement’ (where the public realm or economic density is currently of lower quality than could be achieved).

• The revised Opportunity Areas could be orientated around locally important or growth sectors and their links to education and research. The connectivity HS2 will provide to the rest of the UK via Euston should also be a factor, alongside the Government’s emerging Industrial Strategy.

• New policies should take account of the need to constantly update London’s retail, leisure and food and beverage offer.

It has an important role beyond employment and tourism – it is a key part of the city’s soft power. As part of a finegrained mix of uses, it plays a role in attracting footloose occupiers and sustaining sector-based clusters.

• Policies should allow more flexibility over how greater density can be achieved for selected sites within the Opportunity Areas – as long as the scheme adds to the public realm and is of outstanding architectural quality.

• A more flexible townscape and mixed-use policy should only be available to developers and landowners who formally ‘sign up’ to the Opportunity Area frameworks and related planning briefs.

• The mixed-use policy should prioritise employment space in selected areas within the Opportunity Areas, recognising that this could lead to additional residential provision elsewhere in Central London.

• Inefficient, outdated or unattractive buildings (or simply those with heights below those of the surrounding buildings) could be identified as highly suitable for redevelopment.

• Greater retention of London’s property taxes could be used to fund Crossrail 2 among other infrastructure improvements.

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LONDON GROW

For the past two decades, London has been one of the fastest growing cities in the Western World. According to the Greater London Authority (GLA), the number of people living in the capital rose by around 1m between 2006 and 2016. Oxford Economics estimates that over that decade alone its economy grew by almost a third.

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N’S RAPID WTH

The nation as a whole has a vested interest in London’s continued growth.

The think tank Centre for Cities calculates that London generated almost as much “economy-dependent” tax as the next 37 largest cities combined in 2014/2015 – almost a third of the UK total.

The benefits of London’s growth and high productivity extend beyond Government revenue. London plays an important role as a launchpad for international companies and a testing ground for domestic entrepreneurs – who often move on to invest in other British cities and towns.

International investment banks such as JPMorgan or Morgan Stanley might not be in Bournemouth or Glasgow had London not drawn them to the UK in the first place. Equally, food brands such as Byron, Wagamama or Wahaca may not have expanded into locations such as Birmingham or Manchester, had London not been both inspiration and cradle.

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The Central Activities Zone

Islington

Camden King’s Cross

Angel Regent’s Park

Finsbury

Westminster

Bloomsbury Fitzrovia

Paddington

Marylebone

Hyde Park

Hackney

Euston

Holborn

Clerkenwell Farringdon Barbican Cityof London St Paul’s Bank

Temple West End Soho Strand Southbank Mayfair

Knightsbridge Kensington Gardens

St James

Waterloo

Broadgate Aldgate

Tower of London London Bridge

Tower Hamlets Canary Wharf

Blackwall

South Quay

Borough

Palace of Westminster Victoria

Elephant and Castle

Southwark

Pimlico

Kensington and Chelsea

Lewisham Nine Elms Battersea

Vauxhall

Greenwich

Lambeth Wandsworth

Luckily, there should be no let-up in the rate of growth. The GLA’s 2015-trend figures suggest that London’s population will rise from 8.9m in 2017 to almost 10m in 2027, depending on whether the even faster trajectory of recent years is sustained.

When London reaches the 10m figure shortly afterwards, it will officially become a ‘megacity’. This will place significant strains on its housing, infrastructure, public realm and stock of employment space.

This growth drives, and is driven by, London’s almost unparalleled ability to create jobs. Between 2006 and 2016 the number of employees rose from 4.2m to 5m – an increase of 17.8%, almost twice the national rate of 8.2%. According to Oxford Economics, the next decade will see a slightly slower increase of around 10% - but this will still be more than twice the national forecast of 4.5%.

Much of the growth in jobs over the past decade has been concentrated in central areas. A third of all new office-based employment was created in the three

boroughs of Westminster, Camden and the City of London. This trend is set to continue, with 36% of growth in such jobs forecast to take place in the three boroughs.

When Tower Hamlets, Southwark and Islington are included, the figure rises to almost two thirds (61%).

There are clear reasons for both London’s growth and the concentration of jobs – particularly in higher value activities – in Central London: • As a result of public transport links, companies locating in Central London benefit from a huge labour pool, even compared to other locations in Greater London; • London has attracted highly skilled workers from both around the UK and internationally, improving the labour pool within a near commute; • The growth in employment has been disproportionately in knowledge-based jobs that thrive on this catchment; • The amenity-rich environment of Central London helps recruitment and retention;

• The economic density of London appears to make companies more efficient, productive and innovative – owing to ‘agglomeration effects’ resulting from proximity to each other; • Retail and leisure operators can draw on a growing, young and international catchment for both employers and customers, making it an ideal location to test or expand concepts.

The factors listed above also explain why productivity in Inner London is around 40% higher than the national average (based on 2013 ONS figures), which in turn explains why it is such a pull for businesses internationally.

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These benefits appear to fall away quickly outside the Central Activities Zone (CAZ) depicted above. Productivity is still higher than the rest of the country in other parts of Greater London, but at only circa 15% above the UK average, it is not much more so than the rest of South East England.

The essential characteristics of Central London cannot be recreated easily elsewhere in the capital or the UK more generally.

If London’s housing, infrastructure and business space prove incapable of providing for the level of central growth outlined above, it cannot be assumed that economic activity will be displaced to elsewhere in the country.

Businesses may simply not start or expand, or investments may be made in other global locations that are able to provide the ingredients that are so powerfully present today in Central London. Others may remain but will be less productive and innovative that they might otherwise have been.

This would be a loss for the UK as a whole, not just for London: lower productivity, lower tax revenues, and fewer investment decisions favouring the rest of the country after a base has been established in the capital.

When considering London’s growth and the need for new infrastructure and business space, it is worth remembering that until relatively recently – the 1980s – London’s population was falling and it was generally seen as a failing city. It could be dismissed as coincidence, but it is interesting that the first signs of London’s revival can be traced back to the shelving of the Motorway Box in the 1970s and other road schemes and the decision to invest in its public transport infrastructure.

This suggests that its growth and prosperity cannot be taken for granted. Indeed, it could be argued the availability and capacity of public transport in the city, and its impacts on economic density, explain why London has been able to perform as strongly as it has over recent years. The UK’s decision to leave the European Union means that further investment here will be key to sustaining that success, which has proved so beneficial to the nation as a whole.

The changing geography of growth in Central London Within this broad picture, it is important to recognise that the geographic distribution of growth appears to be changing. Since 2002, the Eastern half of the CAZ has seen higher levels of job creation, with the City and Tower Hamlets the twin dynamos of London’s employment market.

that are really possible, particularly given the likely continued loss to residential. Equally, the recent selection of fringe sites by certain higher-profile occupiers cannot be assumed to be a general trend – indeed, it may only represent a reaction to the lack of appropriate space in central locations.

The forecasts suggest that this will shift over the next decade, with Westminster forecast to see the highest increase in office employment of any borough – around 13% of the London total and as much as 21% for strategically important and fast-growing sectors such as information and communication.

Meanwhile, Camden will see stronger office employment growth than Tower Hamlets.

The shift results from significant increases in areas such as information and communication, professional, scientific and technical and administrative support, which have tended to cluster in the West End2. In contrast, the financial services sector, which has driven the growth in the East of the CAZ in recent years, will see flatter employment trends. Of course, lower demand could lead to changes in relative costs, leading to sectors moving into areas they were not previously associated with.

This departure from recent trends suggests that growth in demand for public transport could be more skewed to the western half of the CAZ than has been the case in recent years.

The figures also imply that Westminster alone will need to provide between 8m and 10m sq ft of additional office space over the next decade to house this growth, based on very conservative assumptions of occupancy ratios of 1 person per 8-10 sq m. JLL estimates that in the Central London parts of Westminster (including Paddington), around half of this total – circa 5m sq ft – has been built over the past 20 years, an average delivery of 2.5m sq ft per decade. This demonstrates the scale of the challenge ahead.

Even if it can be demonstrated that there are sufficient sites to provide for need, recent delivery may be a better guide to the amount of net additions

1 The two figures are based on assumptions of 8 sq m per workspace and 10 sq m of workspace.

The former is more likely given greater use of hotdesking and flexible working.

2 Westminster alone accounts for over a fifth (21.5%) of growth in the strategically important Information & Communication sector.

But there does appear to be some reluctance among many companies, particularly in the fast-growing media and technology industries, to move into areas that are perceived as corporate, ‘manufactured’ or lacking in the mix of building ages, types and uses that characterises the West End or City Fringe.

If these areas are inaccessible or unaffordable, it could lead to these forms of economic activity moving not to the City or Canary Wharf – or to Manchester or Birmingham – but to other European or world cities. It is worth noting that the City is already improving its amenity offer and there have been some technology companies moving into the area, where rents are increasingly at a discount to much of Central London. It remains to be seen whether this is part of a wider trend.

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Forecast Office Employment Growth, 2016-2030 Net additional jobs (000’s) 0

10

20

30

40

50

60

70

80

90

100

Westminster City of London Southwark Camden Tower Hamlets Islington Lambeth Hackney Hounslow Hillingdon Hammersmith and Fulham Wandsworth Richmond upon Thames Barnet Croydon Harrow Newham Enfield Merton Brent Greenwich Bromley Kingston upon Thames Sutton Kensington and Chelsea Redbridge Havering Ealing Haringey Lewisham Bexley Waltham Forest Barking and Dagenham Source: Oxford Economics

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What are Agglomeration Economies?

Firms that locate closer together benefit from shared resources, such as the local labour market, or the parallel clustering of customers and specialised suppliers. There is also evidence that the resulting social contact between employees and specialists leads to “information spillovers” - ideas spreading quickly from one company to another and boosting innovation and productivity. These can occur between different sectors, or through informal mechanisms such as overheard conversations or chance meetings.

The greater the opportunities for interaction within the local built environment, the greater the opportunity for these spillovers. With collaboration between different sectors becoming more important to business, many campusstyle developments are now designed with the brief of ‘encouraging collisions’.

London has well-established sector clusters in particular parts of the capital.

The most obvious is the concentration of banking & insurance activities in the City and Canary Wharf, with a more

recent agglomeration of boutique finance in Mayfair, St James’ and Marylebone.

Soho and Fitzrovia have historically been home to the media and communications sector, although there has been growth more recently in areas such as Clerkenwell and Midtown. Professional Services have congregated on the Southbank.

Recently, occupiers appear to be focused on the advantages of broader agglomerations of activity complementary activities rather than sectorial fit. Universities, institutions and social amenities are seen as important.

The appeal of the University of the Arts and the Crick Institute at King’s Cross were key in attracting Google and Life Sciences tenants respectively.

Shoreditch is an example of a larger business ecosystem in which creative talent, benefiting from its strong heritage in London, is working in tandem with technologists. There are other examples across the globe, from Boston in the US to Northern European cities such as Stockholm.

In a large city such as London, these effects can take place at a much larger scale. The range of interactions and the depth and breadth of shared services and facilities that are possible produces huge benefits for businesses locating in accessible locations. This is one explanation for why London is far more productive than the UK as a whole.

Transport is a key reason why the mix is possible in the first place. And by allowing more of these interactions to take place, or giving local services or amenities a larger catchment, transport schemes can enhance economies without any other physical changes occurring.

“Agglomeration economies are the benefits that come when firms and people locate near one another together in cities and industrial clusters.”

Edward Glaeser, Professor of Economics at Harvard University

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Implications for Infrastructure and Transport Use of the two by 13%. (It could be argued that this growth has driven the agglomeration economies of London and created jobs, as well as the other way around).

London’s growth – and in particular the growth of jobs in Central London – has led to a surge in public transport use.

The number of journeys by London Underground has risen from 971m in 2005/06 to 1.35bn in 2015/16. Public transport’s share of overall passenger journeys in the capital has increased from 30% in 1994 to 45% in 2014.

The graph below shows how Londoners’ means of travel has shifted over the past two decades. The fall in car use is evident, as is the rapid increase in public transport use.

However, it is also worth noting the change in patterns since 2009; bus use has flattened and the growth in the number of journeys by rail and underground has accelerated.

Between 2009 and 2015 alone, the number of journeys by National Rail terminating in Central London rose by 24%; by Underground by 30%; and by a mixture

Use of London Transport Modes (Indexed to 2001) 200

180

160

140

120

100

80 2001

2002

2003

2004

Rail

2005

2006

Underground

2007

2008

Bus

2009

2010

Car driver

2011

2012

2013

2014

2015

Population Source: TfL

23

Transport for London’s (TfL) capacity improvement measures3, the Elizabeth Line (which will increase rail capacity by 10%) and the Thameslink programme will continue to enable public transport provision to keep pace with demand until 2026. By then, the additional capacity created will have been used up and overcrowding will have returned to 2016 levels.

Nonetheless, demand will continue rising.

TfL forecasts that, between 2015 and 2050, journeys by tube will increase by 60% and by rail by 80%. This will be driven by continued centralisation of jobs, and population growth, with more people choosing to commute from further away as the housing crisis continues to bite.

This suggests that more infrastructure improvements will be required after 2026 if Central London is to continue to generate new jobs, increase its economic density and deliver benefits for the rest of the UK. Before it becomes physically impossible to move employees into Central London for the jobs potentially on offer, the discomfort and overcrowding involved may prompt companies to choose other locations, potentially outside the UK. It is important to recognise that London’s commuter footprint stretches as far north as Lincolnshire to the South Coast and parts of the West Country, and will take in more of the Midlands when HS2 is in place. It is longer distance commuters, rather than

those living in London and able to use alternative transport such as cycling, who will be most likely to suffer from an under provision of infrastructure.

But in a large city such as London this is not just about commuting: the underground system in particular is a key way for those in business to interact. As such, it helps generate the agglomeration effects (and the employment and productivity boosts) described above. Overcrowding and other issues will obviously constrain some of these benefits, and increasingly so with time unless additional investment is provided.

Forecast Peak Morning Overcrowding on Underground lines, 2031

Most severely affected lines Finsbury Park

Northern line (City Branch)

Stratford Victoria line (Victoria – Seven Sisters)

Kings Cross/ St Pancras

Euston

Jubilee line (Waterloo – Canary Wharf) The West End

Central line (Stratford – City) Piccadilly line (Finsbury Park – West End) Waterloo & City line (Waterloo – City)

The City

Canary Wharf

Victoria Waterloo

District line (Putney – Westminster)

3

The London Overground system has also been a major driver of rail use, with passenger journey stages increasing by more than 300% since 2008/9 – or 27.1% per year.

24

PROVIDING FOR LONDON’S FUTURE INFRASTRUCTURE NEEDS The National Infrastructure Commission (NIC) has identified four main challenges for London’s transport infrastructure: 1. Lack of capacity and major overcrowding on key central London Underground lines, particularly the north-south Victoria and Northern lines.

2. Lack of capacity and major overcrowding on rail routes into central London and at key stations – Clapham Junction and Waterloo.

3. Insufficient orbital links, especially in east London, given the lack of river crossings.

4. Insufficient transport access to key areas of housing growth.

25

26

Among various proposals it considered plans for Crossrail 2, a high-speed railway linking Hertfordshire and Surrey via Central London, joining with the first line at Tottenham Court Road. As this would address the all of these challenges except the orbital/East London issue, the Commission has recommended that of all the options Crossrail 2 should be the priority. It has called on the Government to bring forward a hybrid bill by 2019 with a view to the scheme being developed by 2033.

It is likely to be a key part of the next iteration of the London Plan and the Mayor’s Transport Strategy, and TfL is currently working up a business case to present to the Government. It is clear that the scheme would be highly effective in removing some of the constraints to Central London’s growth and its ability to continue to contribute to the wider UK economy.

More specifically, Crossrail 2 would: 1. Provide vital relief for the congested southern end of the Northern Line and for the Victoria Line through North East and Central London 2. Provide an alternative route via the Elizabeth Line from South West London to the City and Canary Wharf 3. Relieve capacity constraints on lines into Waterloo from south-west London and Surrey 4. Reduce congestion at Waterloo, the UK’s busiest station, while cutting crowding levels at Clapham Junction, Vauxhall and Wimbledon 5. Release capacity on south-west network for longer distance services 6. Provide four tracks on the West Anglia Mainline to enable faster services on London-Stansted-Cambridge corridor 7. Link with Euston/St Pancras to provide onward dispersal from HS2

8. Stimulate new housing, jobs and development along the entire route, in particular it will transform access to Upper Lee Valley

onward travel options for HS2 at Euston, this may reduce the potential benefits of the high speed rail line for cities such as Birmingham and Manchester.

9. Establish a turn-up and go level of service at underserved locations eg. Hackney, Haringey, Enfield and Tottenham

For example, after HS2 and Crossrail 2, it would be possible for a person living in the deprived inner eastern suburbs of Birmingham to commute from Curzon Street station to Tottenham Court Road in little more than an hour – less if they travel via the Interchange station.

10. Unlock 200,000 homes with the right planning framework.

The economic case developed by TfL demonstrates that Crossrail 2 could unlock 100,000 additional jobs in Central London.

This is equivalent to 8.6m sq ft of office space (additional to the trends discussed earlier in the report) , based on the very conservative occupancy ratio of 1 person per 8 sq m.

This would generate additional net UK tax revenues sufficient to repay the cost of the scheme and beyond. There would also be additional agglomeration benefits resulting from the expansion in London’s commuter footprint, the greater ease and comfort of travel both to and from work and between business districts.

This would allow more people from such backgrounds to access courses at London’s world class universities, or take on graduate jobs with significant prospects, beyond those who have parents in London, or the means to pay for accommodation. Their ability to commute may be compromised if there are capacity issues with onward travel from Euston. Equally importantly, an ability to travel smoothly from Central London to Birmingham or Manchester may support decisions to make investments in the Midlands or the North.

Clearly, there will be emphasis on unlocking housing sites at the line’s extremities, understandable given the scale and depth of the housing crisis. But for Crossrail 2’s benefits to be maximised, planning and development policies aimed at encouraging sufficient amounts of high-quality employment space in the right locations within Central London, accompanied by improved public realm, need to be considered thoroughly.

Crossrail 2 still has some way to go before being approved. In recent press statements Transport Minister Chris Grayling has said he wants the scheme to go ahead, but added that financing it remains an issue, raising questions around development gain and London’s contribution. The NIC suggested that London should contribute more than half the cost of the scheme (with a ‘fair balance’ between taxpayers, businesses and Central Government).

The NIC suggestions included a “London deal for Crossrail 2” which included development corporations aimed at housing and urban realm provision, alongside revised planning guidance for the whole route.

This raises questions over how the policies around the Built Environment and the property industry can help Crossrail 2 maximise its economic impact and provide more towards its cost.

The potential benefits for the UK outside London and its existing commuter belt are not confined to revenue, as demonstrated

by Point 7. If there are constraints on the

27

Crossrail 2 route as proposed in autumn 2015

28

How The Elizabeth Line is being funded Comparison of The Elizabeth Line funding package with proposed Crossrail 2 packages: Elizabeth Line Project generated revenue Developer contributions (inc CIL) OSD/Property

Initial Analysis for Crossrail 2 (PwC)

Fiscal devolution BRS Council tax precept

London First

Government 0%

10%

20%

30%

40%

30%

60%

70%

80%

90%

100%

Intensification of development

Source: JLL

The models which have been proposed so far for funding Crossrail 2 are somewhat similar to that already in place for the first line – now called the Elizabeth Line – for which the estimated cost currently stands at £14.8bn4.

This is being met through a combination of government grants, private investment from directly affected bodies such as Canary Wharf Group and Heathrow Airport, and two mechanisms aimed at capturing some of the additional land or property value created by the scheme.

The Business Rate Supplement (BRS) is applied to business rates on buildings above a certain rateable value threshold.

The Mayoral Community Infrastructure

Levy (CIL) is a charge on new property development across London, which may exist alongside a borough-level CIL. The Mayoral CIL is levied according to a borough classification, and exists alongside an structured contribution from section 106 which varies across Central London (including north Docklands), and for offices, retail and hotels.

The Over Station Developments (OSDs) are also providing some funding for the scheme. However, unlike cities such as Hong Kong, where very tall, high-density schemes can fund the entire cost of new metro lines, their relatively small scale means the contribution is limited.

5 London First envisage a significant proportion coming from a package of fiscal devolution that would allow the capital to retain property taxation (SDLT and business rates). At present, these taxes flow through the Treasury where they are redistributed nationally based on need. There is a convincing argument that if the capital were allowed to keep more of this revenue to invest in infrastructure, the additional economic activity generated would provide more income through other taxes, to greater national benefit.

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How can Crossrail 2 be funded?

TfL estimates that Crossrail 2 will cost between £27bn and £32bn, in 2014 prices.

This means that, based on the NIC recommendations, “London” will have to pay at least £13.5bn to £16bn towards the cost of the scheme.

London businesses and taxpayers are providing around 40% of the Elizabeth Line costs, with the Business Rates Supplement (BRS) the major part of this. The direct property contribution – CIL and other developer contributions, together with receipts from over site development (OSD) – provides less than 10%.

In contrast, the proposals for Crossrail 2 funding all imply a lower proportion of costs paid by Central Government and a higher ‘London’ contribution – or, in other words, a higher level of funding from property.

This is complicated by the lower amount of single ownerships – such as Canary Wharf or Heathrow – along the route, which reduces the potential for large corporate contributions, which may mean more has to be raised systematically from a wider range of stakeholders.

Two papers – one from PwC, designed to inform the initial business case for the railway, and an alternative from London First – have examined how different mechanisms could be used to contribute to the overall cost. As the totals vary substantially, given different methodologies, they are shown as proportions of the total in the chart below. It should be noted that the Elizabeth Line was a significantly less costly scheme, at around £16bn (in 2008 prices).

PwC’s approach actually anticipates that relatively little could be produced from developer contributions or existing rates of CIL, given the limited scope for additional or intensified development around the central stations (Victoria, Tottenham Court Road, and Euston). This implies that higher fares and an enhanced CIL and BRS might be needed.

The London First report takes a slightly different approach. In its view, intensification of development is possible in parts of Central London and would allow more of the economic benefits of the line to be realised. It estimates that as much as 10% of the cost could be funded through the additional CIL, BIS and developer contributions, although it does not specify where or how this intensification could take place.

Logically, it would seem to be those where the impact of the railway is greatest, measured in terms of additional connectivity and improved travel times.

Planning and development policies – part of the “London deal for Crossrail 2” suggested by the National Infrastructure Commission – could be targeted at these locations to help deliver additional high quality business space and public realm.

Recommendation:

The Government, Greater London Authority and relevant London boroughs should consider how development could be intensified in Central London, particularly in areas which would be most impacted by Crossrail 2.

30

DEVELOPMENT AND THE ELIZABETH LINE – LESSONS LEARNED As part of this research, several developers of Elizabeth Line Over Site Developments (OSDs) were interviewed on their experiences. What were the main pros and cons of the approach used during this process?

The answers can inform the nature of the planning and development policies that could be put in place to maximise the benefits and selffunding properties of Crossrail 2.

31

It is worth noting that developers were unanimous in their support for the project and believed that more investment was necessary if London was to continue its current trajectory of success.

Many developers were sceptical at the time that the Elizabeth Line would go ahead, and ended up having to act quickly.

This should not occur with Crossrail 2 as there is likely to be more certainty given the better recent history of providing new infrastructure in the UK.

Some felt the focus early on was on delivery of the/ railway from an engineering point of view, together with associated CPO, land and construction issues. There were calls for Crossrail 2 to be accompanied by early-stage, big-picture thinking, with input from all parties, across a wider geographic area.

In particular, with the first line, there was not enough consideration of the impact of additional footfall around the station exits and the necessary improvements to keep the environment functional and pleasant. Plans for public space and the impacts of passenger numbers could usefully extend well beyond the immediate area of the station.

There are examples of projects put in place by local authorities – Camden’s West End Project, Baker Street two-way, various measures north of Bond Street – but they are not as comprehensive as they could have been, given greater buy-in.

Recommendation:

At an early stage, Crossrail 2 should start considering the impact of additional pedestrian numbers on the public realm and the demand for business space.

32

Most importantly, given that the Elizabeth Line will increase footfall and connectivity across a large area, there were comments that the development opportunities were considered in quite geographically narrow terms. The counterfactual case study is at Bond Street East, where Great Portland Estates were able to make 5-6 separate acquisitions over an 18-month period and propose a different scheme to that in the planning guidance.

The result has been a much larger scheme, which includes some additional public realm (note that the residential here has been provided off site). There was, still, a feeling that more could have been made of the site had it been planned earlier with the full cooperation of other property interests and local authorities.

Recommendation:

The above-ground plans related to Crossrail 2 should consider a far wider area than just the station and its immediate hinterland. This means that landowners and sites need to be identified early and brought into the process.

5 London First envisage a significant proportion coming from a package of fiscal devolution that would allow the capital to retain property taxation (SDLT and business rates). At present, these taxes flow through the Treasury where they are redistributed nationally based on need. There is a convincing argument that if the capital were allowed to keep more of this revenue to invest in infrastructure, the additional economic activity generated would provide more income through other taxes, to greater national benefit.

33

There were some complaints that the townscape and mixed-use policies were applied too rigidly at the OSDs. Given the enormous connectivity opened up by the stations, it was felt they were unique enough opportunities to justify even more flexibility around policy than was eventually achieved.

This was felt to be particularly the case in locations such as Tottenham Court Road where the presence of an existing very tall, listed building (Centre Point) meant that the context was entirely different to much of the rest of the West End.

Applying this logic across a whole swathe of OSDs, however, there would appear to have been a significant opportunity cost for much of Central London in not attempting to take a wider view of what could be achieved across larger areas, or adopting a slightly more flexible approach to policy.

across swathes of Central London. This could have provided all sorts of additional benefits in terms of public space, retail and leisure, and setting, and not just around the stations.

The Elizabeth Line could have, with guidance, triggered a number of sensitive office-based schemes which could have increased the intensity of use, the attractions of the location, and/or scale or massing

Recommendation:

There could be more research into how Crossrail 2 would impact on the pedestrian movements, office and retail demand and the wider built environment across Central London. This will enable a greater understanding of where policy interventions could be used selectively to stimulate appropriate development.

Canary Wharf were able to take a broader view, building the station itself using its contractor arm for a lower cost than the market would provide; however this is somewhat of an unusual situation given ownership patterns; the benefits of the new railway will allow the development of significant amounts of additional office space which will be located entirely on the estate.

This is not replicable elsewhere given the unique nature of the estate but it does demonstrate the potential of a new piece of infrastructure for catalysing new development in a much less restricted environment.

Given the evident need to take a wider view than the stations, and the densely developed, historic nature of Central London, it is

important to understand in a targeted way where demand for offices will increase most in response to Crossrail 2. This will help inform the sort of policies and their geographies that could help maximise the railway’s impact and fund more of its costs.

34

THE IMPACT OF CROSSRAIL 2 ON OFFICE DEMAND Policies aimed at maximising the benefits of Crossrail 2 need to be informed by an understanding of which locations will see the most significant uplift in demand for employment space.

35 35

Source: CACI / JLL

JLL has, with CACI, carried out some preliminary work examining the effects of the journey time improvements provided by the railway. The map above shows the results. The colours indicate the additional number of people within a 45 minute commute - the darker the colour, the more additional people would be put within reach as a result of Crossrail 2.

Given that access to labour is shown again and again to be the major reason for location decisions, this should correlate strongly with additional demand for office space in each location produced by the two railway lines6.

These are mostly produced by ‘network effects’ resulting from the interaction between the new line and the existing infrastructure (which, for this model, includes the Elizabeth Line, but not HS2).

However, the effect is more marked in the eastern part of the West End (specifically around the Charing Cross-Tottenham Court Road-Euston-Camden corridor), the northern part of the City / Midtown and the northern City Fringe. Taken together, these two areas produce an ‘r’ shape between Strand, Somers/Camden Town and Angel, with the top of the ‘r’ curving down towards Shoreditch and Old Street.

Much of the CAZ benefits strongly, with increases in catchment within 45 minutes of 500,000 people or more.

6 It is important to note that this does not take account of the additional population entering London over the next two decades, or other infrastructure improvements such as the Bakerloo Line Extension or, indeed, Thameslink improvements, so is likely an understatement of the potential benefits.

36

There is a less marked, but geographically larger, effect in the south-western part of the CAZ, taking in the whole area south of Oxford Street and West of the Bond Street-Victoria Station axis, stretching somewhat to the east and south of the station as well.

The slightly less dramatic impact around Victoria itself is the result of the area already being very well connected to the south west and north east by a combination of overland rail and the Underground. However, this also demonstrates a further reason why this approach understates the potential benefits; the additional capacity, comfort and lowered overcrowding on transport links and within stations will benefit the Victoria area, even if this is not as apparent in catchment changes.

There is also a strong impact outside the CAZ around Dalston Junction, Clapham Junction, and King’s Road. They are much more residential in character, although there are opportunities.

The areas showing most connectivity gains overlap considerably with the Victoria, Tottenham Court Road, Euston and Tech City Opportunity Areas (OAs), although in most cases they are relatively small.

Designated in the London plan, these are areas which have significant capacity for housing or commercial use, together with improved public transport access, and have special status within the planning system.

intensification of economic activity it will tend to stimulate in these areas. This points to a need to increase the quantum and/or quality of business space in these locations, while maintaining a mix of uses, including residential.

The OAs could be reviewed in line with a more detailed study of the connectivity benefits of the line, and used as the basis for London Plan policies that might help Crossrail 2 achieve its economic objectives.

They could even potentially be merged.

The ability of the railway to produce maximum benefits for the UK – and to help fund itself – will partly depend on whether these locations can house the

Recommendation:

The London Plan should develop a policy framework which ensures that the potential for development and more intense land use is fully realised by Crossrail 2. The existing Opportunity Areas could be reviewed in line with the impact of Crossrail 2 on connectivity and accessibility.

37

Specific sites could be identified within the OAs where there is potential for larger, but sympathetic, world-class mixed-use schemes. This would involve a sophisticated understanding of where demand for office space is likely to be most marked, potential stress points within the public realm (particularly given footfall changes) and buildings that are inefficient or outdated.

Planning briefs could be worked up for these locations, forming the basis of co-operation between landowners, developers and the public sector.

In selecting these locations, the policies could also take into account areas where buildings are inefficient or antiquated or the public realm is poor or under capacity given potential pedestrian volumes.

Clearly, the planning team at Crossrail 2, the GLA and individual boroughs needs to take advice from a wide range of professionals and stakeholders, given the complexity of the CAZ economy as well as landownerships, and to ensure that the schemes are genuinely sympathetic to all users and best-in-class. These should be bought into the process, perhaps via existing bodies such as the West End Partnership (WEP).

Recommendation:

Based on Crossrail 2’s effects, the London Plan and local plans could identify appropriate sites for development. Planning briefs could be introduced aimed at creating high quality schemes which contribute to the economic density, visual impact and pedestrian experience in Central London, while contributing to affordable housing provision.

Recommendation:

Within the OAs particular areas could be identified as either ‘stress points’ (i.e. where the additional footfall and connectivity produced by Crossrail 2 will create new problems) or ‘areas for improvement’ (where the public realm or economic density is currently of lower quality than could be achieved).

38

The branding and identity of the OAs could also be an area for investigation. There is increasing interest in the idea of ‘innovation districts’ as defined by Bruce Katz at the USbased Brookings Institution.

The areas of the CAZ which would see greatest connectivity gains after Crossrail 2 have many of these ingredients already, including world-class institutions such as University College London.

He notes that any innovative companies prefer accessible locations with a high concentration of amenities, coworking provision, and the presence of both complementary businesses and institutions – such as universities (or specific departments) and arts or cultural facilities. This is clearly tied to the agglomeration effects outlined above.

In US cities, programmes such as NYU Applied Sciences have focussed on colocating dynamic SMEs and entrepreneurs with academics and researchers in an attempt to increase innovation. Cornell Tech on Roosevelt Island is one such example. Similar programmes, such as MedCity and TechCity, have been successful but have not produced such concrete achievements.

The r-shape of maximum connectivity gains described above – containing the submarkets of Soho, Covent Garden, Fitzrovia, Euston/King’s Cross, Angel, Clerkenwell and Shoreditch – has in recent years attracted a high number of innovative companies in sectors such as technology or life science.

Recommendation:

The revised Opportunity Areas could be orientated around locally important or growth sectors and their links to education and research. The connectivity HS2 will provide to the rest of the UK via Euston should also be a factor, alongside the Government’s emerging Industrial Strategy.

39

The OAs could be branded and orientated around particular sectors and their needs. They could be used as an opportunity to drive more linkages between strategically important clusters and universities, perhaps extending to the type of developments encouraged by planning guidance. This would require a detailed understanding of patterns of economic activity and growth and the needs of important businesses, alongside local skills issues.

This would require early consultation with key businesses and could be informed by the Government’s evolving industrial strategy which proposes ‘deals’ with important sectors. This would extend outside London given the potential impact and opportunities of HS2, which will terminate at Euston, at the heart of the areas most impacted by Crossrail 2.

40

The Changing Nature of Work Innovations in technology are disrupting not just individual businesses but the way that the economy and labour market operate. This has huge implications for what enterprises want from office space and how it will be developed.

and a much stronger emphasis on Wi-Fi connectivity, catering and other services, both traditional and digital. Businesses locating in the same building may share more services and facilities, maybe even the space itself.

The ability to outsource easily and efficiently through digital means implies that many companies will minimise the numbers of permanent staff. In parallel, the number of freelance workers hired on a temporary basis to fulfil certain tasks will rise. There are already examples of legal and programming services which allow companies to draw on huge global resources to fulfil bespoke requests.

This suggests that more businesses will require a central location in a gateway city such as London, albeit one with a smaller ‘core’ footprint and greater flexibility. Cities will have to ensure that more of the right space is available in the most accessible locations, as expectations will be higher.

Companies are likely to adopt a more flexible shape, creating project teams comprised of both permanent and temporary workers, perhaps siting them in on-demand accommodation.

This will increase the need for faceto-face contact; central offices become less places to work (at least for many employees), and more places to meet, plan and collaborate, with much of the work done elsewhere.

The emphasis placed on being in the right location will rise; it will be seen as being key to attracting the right teams, through the quality of the local environment and the company brand.

There will be a real emphasis on the “user experience” at these locations: much smaller areas of floorspace devoted to desks; much larger areas devoted to meeting rooms or more informal reception or break-out areas;

The “user experience” will extend to the space around buildings –public realm and the availability of services such as Wi-Fi – as well as the quality of local architecture, amenities and a fine grain of uses, public transport and ‘smart city’ technologies.

Clearly, a risk for London is that it is unable to refresh its building stock to prepare for this changing environment; Crossrail 2 could help catalyse the necessary changes.

Admittedly some of the very large tech companies appear to have selected campus-style developments on the fringes of Central London, which may reflect the commercially confidential nature of some of their activities. This does not mean that most other occupiers would still choose a central location if possible, and the recent popularity of some edge-of-centre schemes may reflect lack of choice (and cost) in the West End (for example) rather than anything else.

41

Recent trends in floorspace development of new office districts such as King’s Cross, Paddington and Southbank, as well as the rapid expansion of the City Core, where the stock expanded by 19.3%.

Given the likely impact of Crossrail 2 on demand for premises, it is worth examining the geographic distribution of new office space in London over recent years. This should highlight areas in which the market or policy related constraints on development are most marked, helping to identify what is preventing - and will continue to prevent – the market from delivering.

However, in the Core West End submarkets of Mayfair, St James’s, North of Oxford Street, Fitzrovia and Soho – among the markets which would be most affected by Crossrail 2 – the figure is just 3.6% . Of these, only Fitzrovia has seen a rate of growth ahead of the Central London average.

The total amount of office floorspace in Central London has increased by 23.3% since 2001. However, much of this is a result of the

The pie chart below shows the overall contribution of all Central London submarkets to the net additional stock over this period (submarkets with losses to stock have been removed). Around half of the new stock comes from the Core City markets, with a further 16% in the Southbank, which can be seen as their southern extension. Paddington and King’s Cross are relatively significant; the other West End submarkets less so. The graph below the pie chart shows the very different trajectories of the two main CAZ markets, indexed to 2001 floorspace levels.

Sources of New Office Stock, 2001-2016

6% 4%

17%

4% 4%

City Central

Euston/King’s Cross

Southbank

Bloomsbury

City Eastern

Fitzrovia

City Northern

Mayfair

City Western

Others

8% 16%

8%

Paddington

8%

13% 12%

Source: JLL

The difference between this and the Westminster figures quoted elsewhere is probably due to the JLL data not including offices below 5,000 sq ft, which may disproportionately have been lost to residential and other uses.

7

42

Office Stock Gain (against 2001 baseline) 20,000,000

15,000,000

10,000,000

500,000

0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

-500,000

Core West End

Central London

The map below shows where net additions to the stock since 2001 have been concentrated. It is worth comparing this map with that showing connectivity gains produced by Crossrail 2 earlier in the report. There has been a reasonable

Core City

Source: JLL

level of development in Fitzrovia and Victoria, for example, but there is a clear skew to the East, away from the route of the railway and the areas which will see the greatest connectivity gains.

Source: JLL

Of course, as outlined above, additional space is not the only important factor. If stock is refurbished, then the improved quality and layout of space should enhance the appeal of areas to occupiers, while allowing them to attract better quality workers and/or enhance the efficiency and productivity of existing activities.

There are some West End submarkets, such as Covent Garden and Victoria, which have a reasonably high level of refurbishment activity. However, many of the areas that would see greater connectivity gains from both Crossrail lines – Fitzrovia and Soho, for example – are generally less ‘refurbished’.

Refurbishment volumes in 2016 were the highest on record, but redevelopment and reconstruction are at lows compared to previous cycles. This may reflect difficulties around financing, or a shortage of opportunities to redevelop or reconstruct.

8

43

Refurbishments (by submarket) since 2001 0

500,000

City Midtown Covent Garden Western Central Victoria Bloomsbury Eastern Southbank Mayfair Southern Northern Soho Fitzrovia/Noho Clerkenwell St James’s Aldgate N of Oxford St Shoreditch Stratford Hammersmith Kensington/Chelsea Euston/King’s Cross Paddington Belgravia/Knightsbridge Camden Battersea Source: JLL

Over the past few years, rents have generally risen faster in West End and City Fringe markets than in the City Core. The patterns of development seen cannot simply be the result of lower demand in some markets; rather, they must be the result of various forms of market constraints.

1,000,000

1,500,000

2,000,000

2,500,000

44

Potential growth in office stock to 2021 It is impossible to know what the recent track record and immediate pipeline of office developments will be around the time that Crossrail 2 is delivered sometime in the 2030s.

The West End core markets of Mayfair, St James’s, North of Oxford Street, Fitzrovia and Soho all account for relatively minor shares of the net potential gain in office stock – just 580,000, or 1.7%.

However, looking at JLL’s pipeline data for the coming five years should demonstrate whether the picture identified above is temporary or rather the result of longer-term market and policy issues.

In summary, the pattern of growth seen over the past decade is likely to continue over the foreseeable future, with development focussed on the south-eastern City and in relatively newly established markets outside the core West End.

This reveals that the City and East London markets are likely to produce the greatest net increase in office stock over the next five years. Current development would produce a 5% increase in floorspace, with unstarted schemes having the potential to deliver roughly the same again. In contrast, overall West End stock will see a net increase of just 2%. If all pipeline schemes are delivered, that could rise to around 5-6%. However, this is misleading - much of this will be delivered in newly emerging West End markets such as Battersea, rather than in Central London.

The pie chart below shows the forecast for net additional to stock by submarket across Central London. The City Eastern sub-market, home to the City of London’s tower cluster, is a clear outlier with 2.7 million sq ft of additional stock scheduled to complete over the next five years, representing a third of the total net gain across all of Central London. Alongside Battersea, other West End fringe markets feature highly with a combined 677,000 sq ft potentially delivered at Paddington and King’s Cross.

The patterns are very established and persistent, suggesting they result from geographic, planning or ownership constraints that will, without policy changes or interventions, remain in place at the point where Crossrail 2 is delivered. This could be a major barrier to maximising the benefits from the railway and the level of funding from the property industry – as the areas in which it has most impact appear to face significant barriers to the provision of more or better quality office space.

Net gain to office stock (redevelopment), 2017 – 2021 Eastern 41%

4%

2% 3%

Central 9%

3%

Shoreditch 8%

4%

Eastern 41%

Battersea 7%

Central 9%

4%

Shoreditch 8%

Paddington 5%

41%

Battersea 7%

Paddington 5%

King’s Cross 5%

5%

King’s Cross 5%

Western 5%

Western 5%

City Midtown 4%

5%

City Midtown 4%

Northern 4%

Fitzrovia/Noho 3%

Northern 4%

Victoria 3%

5%

Fitzrovia/Noho 3%

Mayfair 2% Others 4%

Victoria 3%

7%

Mayfair 2% 8%

9%

Others 4% Source: JLL

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Retail and Leisure in Central London This paper has focussed on the provision of office space, but the retail and leisure sector is also a major employer in Central London. Clearly, there is less scope for intensification given the ground floor nature of retail in much of the CAZ – a situation we would not envisage changing.

More comprehensive mixed-use schemes in the West End could offer refreshed and modern space which would allow London to continue playing this role. Indeed, this will be more important in the coming years as retailers adapt to the impact of online retail.

London is rated as the most attractive market among leading global retail cities in JLL’s Destination Retail report. It is viewed as the springboard into Europe by international retailers, with a base in London used to ‘test’ retail and leisure concepts before moving into other cities, including those in the rest of the UK.

Shops are already becoming more like showrooms, allowing customers to view and feel their potential purchases; the actual transaction may be made elsewhere. The emphasis on being in the right location will continue to increase, boosting demand for accessible Central London locations. This will also increase demand for food and beverage and other leisure in the area, given both greater footfall and the greater appetite for overall ‘experience’, in addition to the steady increase in eating out seen over recent years.

The city’s attractiveness to international brands is key to their subsequent investment in cities such as Leeds, Glasgow or Cardiff – often well before they move to other European cities of similar size.

Furthermore, the sheer range and quality of Central London’s retail and leisure offer – particularly in the West End, but increasingly elsewhere – is absolutely central to its appeal for employers and employees. Indeed, with collaboration and flexibility now corporate watchwords, the environment around offices and the perceived productivity and recruitment/retention benefits for occupiers are paramount in location decisions.

This suggests that the ability to refresh and upgrade retail and leisure space through coherent mixed-use schemes will be key in maintaining London’s position for office-based industries, too. Likewise, the role of London’s world-leading hotel offer is also important.

Recommendation:

New policies should take account of the need for constantly update London’s retail, leisure and food and beverage offer. It has an important role beyond employment and tourism – it is a key part of the city’s soft power. As part of a fine-grained mix of uses, it plays a role in attracting footloose occupiers and sustaining sector-based clusters.

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ADDRESSIN CONSTRAIN Why do different submarkets have the very different patterns in development or refurbishment?

Geography, ownership and existing use patterns are important. The strategy of long term family investors will differ from active funds; universities or the temples of law – which dominate Midtown – are unlikely to sell for redevelopment.

in the property industry claim that development with less than a 30% increase in floorspace is often unviable9.

However, there are also policy constraints which may need to be reviewed in the light of Crossrail 2.

In other cases, other uses – such as residential – may be more profitable.

There are issues around the high capital values and low yields associated with offices in Westminster in particular, which may mitigate against redevelopment or refurbishment, particularly when set against the very strong demand for space in the area.

Westminster itself notes that some

It could be argued that the existing policies have not stopped some schemes coming forward in the West End. At St James’s Market, for example, The Crown Estate has produced an outstanding scheme which demonstrates what Crossrail 2 could and should catalyse in many locations throughout the West End.

9 These factors may explain why, as Westminster notes: “[Since 1996] permitted schemes that have not been started represent a net loss of 183,000sqm of offices, sufficient for about 12,500 jobs, and permission for 1,624 homes.”

ING THE INTS

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It has refurbished two historic blocks off Lower Regent Street, developed new buildings and provided outstanding new public space, including a 10,000 sq ft square, all in the heart of the West End. The final development has provided 200,000 sq ft of prime office and 50,000 sq ft of flagship retail alongside residential space, and has already attracted some very prestigious occupiers for both types of commercial uses.

Most owners in the West End, particularly outside the Great Estates, own far smaller sites, have shorter term views and lack the ability or inclination to invest large sums today to achieve significant investment returns at some point in the future. They lack the scale to sacrifice value to create public space on the basis that it may improve returns elsewhere on the site in due course.

However, this site benefits from a relatively rare set of conditions. The site is large for the West End and the buildings were all in one ownership – The Crown Estate. The owner had deep resources and a long-term view and had the reach and scale to attract investment from another source (Oxford Properties), allowing it to de-risk the development. It could employ a high-profile architect – Make – to produce a world-class scheme, and had the expertise to make a complex scheme happen.

These barriers need to be addressed – and incentives and/or larger-scale collaborations introduced – if schemes such as St James’s Market are to take place, with all their economic benefits, in locations most impacted by Crossrail 2.

Landownerships in many other parts of the West End, Midtown, City Fringe and South Bank are highly fragmented, at least outside the Great Estates. There are often complex lease structures in place. Without the widespread use of CPO powers, this makes the provision of large-scale new office or mixed-use development projects problematic, even around transport hubs.

Areas that might be suitable for larger redevelopments along the lines of the St James’ Market scheme would already have been identified through the Opportunity Area reviews outlined earlier in this report. The owners around these schemes could be brought into conversations and consultations around the potential planning briefs, with a view to encouraging collaboration, as discussed above.

Bringing landowners together will be necessary but not sufficient.

Westminster’s historic fabric, which is of international importance, is understandably carefully protected. It has an extraordinarily high number of listed buildings, 56 conservation areas covering 77% of its land

area, and 85 squares which are protected by an Act of Parliament. There are several famous settings for listed buildings which are also protected, including some largerscale views. This heritage is a key part of London’s appeal as a place to live and work.

Westminster’s 2015 City Plan Revision sets out the council’s view on townscape: “In assessing new development, we will consider how the design has responded to the existing context and its relationship to the established pattern, density and scale of surrounding townscape, taking into account existing rhythms, symmetries, degree of uniformity and the composition of elevations and building lines.”

The implications for tall buildings are laid out elsewhere in the document: “The council’s policy approach to tall buildings over the past fourteen years has been informed by a High Buildings Study which was undertaken in 2001. It concluded the most appropriate location for tall buildings is Paddington Opportunity Area but identified very limited scope for new tall buildings in the rest of Westminster, due to the settled character of the townscape and significant concentration of heritage assets.”

Camden’s policy argues that similar judgements will be made about individual developments, but seems somewhat less strongly worded.

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This makes it difficult to justify buildings that are even slightly higher than the existing built form. This restricts upward extension to a marginal amount which constrains viability, meaning that existing buildings cannot be extended upwards to the general townscape level, except perhaps in high-value, single ownership locations such as Regent Street. This also reduces the incentives for owners to demolish and redevelop unsuitable or inappropriate office developments.

Without some ability to develop additional space via adding floors, it may simply not be viable to redevelop in many cases, particularly at the larger scale which would enable, for example, new public squares or wider pavements to be produced. The business space that can accommodate the more intensive economic activities that Crossrail 2 could bring may not be developed as a result.

These constraints are amplified by the viewing corridors that stretch from St Paul’s and the Palace of Westminster in widening bands outwards across Greater London, in which development higher than their spires is prohibited.

Many of these restrictions are understandable protections of the historic built environment within the borough.

It is recognised that new office space in these locations will need not only to be of appropriate quality for a world-renowned architectural environment – it will have to be very sensitive to its context. But this should not preclude additional space being provided.

General principles for the new policies could be provided within each Opportunity Area Planning Framework, supplemented by more precise details in planning briefs provided locally.

There is no suggestion that Westminster or Camden should allow the widespread development of towers on a City scale.

Rather, each planning brief would provide an opportunity to assess, based on the local context, how best to achieve greater density, given the nature of each site and the objective of achieving improvements to the building stock, the streetscape and the public realm. Westminster has launched a consultation on building height and how to achieve growth, which could be a first step towards a more flexible policy.

Given their newly hyperconnected status, the areas immediately around stations could be subject to particular scrutiny.

The provision of additional office space within higher quality urban environments should, in the short term at least, prompt other landowners to reconsider refurbishment or other improvement measures, given the additional competitive pressures.

Recommendation:

Policies should allow more flexibility over how greater density can be achieved for selected sites within the Opportunity Areas – as long as the scheme adds to the public realm and is of outstanding architectural quality.

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Developers and landowners could be asked to agree formally to participate in Opportunity Areas and more specifically in the planning briefs. The more flexible policies would not apply to sites which are not collaborating and participating in the planning guidance for the areas in question. Compulsory Purchase Orders (CPOs) should only be used in very selected circumstances. However, if a small ownership is preventing a major developerled scheme proceeding - as at Land Securities’ recent Nova scheme in Victoria, then it should be considered.

This may not be required as the gains for individual landowners – and the incentives to proceed with a scheme – should be greater given the opportunities to improve the wider environment.

Recommendation:

A more flexible townscape and mixed-use policy should only be available to developers and landowners who formally ‘sign up’ to the Opportunity Area frameworks and related planning briefs.

The costs involved in providing additional floorspace are complicated by the mixed use policy adopted by Westminster and Camden in the 1960s and 1970s. Unlike then, the market is now providing reasonable levels of market residential in central locations: the issues are a shortage of the affordable housing that Westminster’s workers and residents can access, and the loss of office stock to other uses.

According to Westminster, over the four years to 2016 office space equivalent to 11,500 jobs was lost to residential, with the equivalent of 11,000 lost to schemes currently under construction.

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Westminster has adopted a more flexible policy that requires lower additional residential for increases of 30% to 50%, with full like-for-like provision only applying above this level. It also has allowances for ‘land use swaps’ and credits for affordable housing, and further measures are proposed.

Nevertheless, the overall picture is still biased towards the loss of office space; the provision of residential in the place of offices does not require any replacement. This is evident at Baker Street, for example, where work carried out for the Portman Estate suggests that 26% of the office stock has been lost since 2006 - equivalent to around 240,000 sq ft NIA or over 2,000 full-time jobs. The overarching aim is to direct larger scale office development to Paddington and Victoria (although both these locations do not have infinite capacity, something which may be more evident by the 2030s).

While it is recognised that Westminster’s mixed-use policy has changed, more flexibility within the Opportunity Areas may allow more of the benefits of Crossrail 2 to be realised. For many of the sites identified, particularly those in newly hyperconnected locations, on-site residential may represent a huge opportunity cost. More homes can be provided off-site in locations more suited to residential use, providing a more impactful route to dealing with the housing crisis.

Recommendation:

The mixed-use policy could prioritise employment space in selected areas within the Opportunity Areas, recognising that this could lead to additional residential provision elsewhere in Central London.

Alongside this, the Opportunity Area frameworks, could identify particular buildings as particularly suitable for redevelopment – those using the land area inefficiently, of low height, of poor quality, or negatively affected the potential pedestrian experience. This approach may appear radical, but it is entirely consistent with the Mayor’s strategy - as expressed in the “City for All Londoners” document released late last year. It states:

“There is a need to intensify development across the city - and significantly in wellconnected locations in the city that are well served by existing or planned transport capacity. I will use a number of methods, including well-designed higher-density development.”

Recommendation:

Inefficient, outdated or unattractive buildings (or simply those with heights below those of the surrounding buildings) could be identified as highly suitable for redevelopment.

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CROSSRAIL 2: A DEAL FOR CENTRAL LONDON Crossrail 2 is primarily a transport project. But it is not just a transport project. Its potential effects on London’s built environment could be the most important way in which it supports economic growth.

Harnessed properly, this could allow the scheme to fund much more of its overall cost.

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Crossrail 2 could also be a catalyst to future proof Central London for the challenges of the next few decades – but this will be dependent on a much broader approach to planning and property, together with a greater flexibility around policy and high levels of public-private cooperation.

The next iteration of the London Plan, and planning and policy documents produced by boroughs, could place particular emphasis on these factors, as well as the threats and opportunities facing the CAZ, its importance to the UK economy and the impacts and potential benefits of the railway.

This could take the form of policies incorporating the recommendations in this report. These are necessarily tentative and more research and consultation needs to be carried out before they can be formalised.

It would also provide a review of the Opportunity Areas, which could form the basis for special planning policies.

The Opportunity Area Planning Frameworks would be aware of strategically important business clusters, aligning with the Government’s emerging industrial policy. The impacts on the rest of the country, particularly given the interaction between Crossrail 2 and High Speed Two, should also be taken into account.

The frameworks would also allow certain sites to be targeted for redevelopment, based on an analysis of impacted locations as well as an understanding of where buildings and the public realm are most in need of revitalisation.

In collaboration with landowners, stakeholders and expert third parties, planning briefs would be drawn up examining the potential for world-class employment-led schemes in these locations. They would take account of the demands of local businesses, the need for affordable housing, the changing nature of work, the stresses on the local public realm and the architectural context while being allocated slightly more flexibility over how greater density can be achieved.

This would have to be undertaken with great care. The attraction of London as a place to work is partly attributable to its fine-grained and historic environment, and damaging this would be counterproductive.

However, London also remains in a unique place in terms of its scale, competitiveness, global reach and diversity. It faces huge challenges around housing and infrastructure which could prevent it continuing to deliver benefits to the UK economy.

This means that a sensitive balance needs to be struck between conservation of the existing built form and creating the spaces needed by the businesses of the future. But additional building stock of the right sort and in the right place could lead to greater economic density, tax revenue and funding for Crossrail 2 itself.

The London Finance Commission has suggested that London’s infrastructure needs could be funded by greater retention of its property taxation, which is currently redistributed by Central Government. This would dramatically increase the city’s ability to fund this vital piece of infrastructure.

Crossrail 2 is a one-off opportunity to address some of the issues which have held back economic growth within London and further afield, improving the quality of life across the country as a whole. The property industry, together with Government, has a vital role in ensuring that the built environment, and the policies that shape it, can both help fund a much larger share of its cost and prepare the capital and the country for its arrival.

Recommendation:

Greater retention of London’s property taxes could be used to fund Crossrail 2 among other infrastructure improvements.

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The WPA would like to thank the Crossrail 2 team for their assistance in the preparation of this report. We are also grateful to the generous support of the following board member sponsors, who have helped fund this body of research.

JLL authors Jon Neale, James Norton and Cameron Ramsey

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