Examination of Witnesses (Questions 360
- 379)
360. Mr Binley: I am sure this is a very
dated view. I tend to be quite old and that impacts upon my thinking.
We had things like Centrepoint which remained empty for a considerable
time and tended to be a balance sheet asset rather than a building
for use almost. At least that was the thought. There is none of
that sort of development, I assume, that goes on in the City any
longer?
(Mr Rees) The banks learned their lessons quite
a while ago about lending money on developments that were purely
being put up for those speculative purposes. Buildings in the
past have been put up either as an act of speculation for the
long term or even as ego symbols, if you like. The buildings that
are going up in the City are either largely owner occupied and
therefore do not go up until a particular person wants to put
up a building or are being designed for a very specific sector
of the market. They are not being put up in the hope that one
big tenant is going to be coming along; they are looking at buildings
which are sub-divisible to accommodate the known requirement.
The vacancy rate in the City is around 12%. That is good in the
sense that it provides ready provision for people to move in.
When you get up above 20%, you start to get worried. When you
go through those periods you know the banks have got it wrong,
the developers have got it wrong or it is being done for the wrong
reasons. We are not in that kind of era at the moment. Although
the press love to quote Swiss Re as an example of a building that
has been built but has not been fully let, you are looking there
at a very specialised example. It was built by a particular owner
occupier. They wished to expand into the remainder of the building
in the medium term and therefore they are looking for very high
quality tenants to take small amounts of space for a very short
period and at a high price. In other words, they have specialised
their market greatly. It is not just space waiting to be let,
so the impression that might give you in the press would not be
correct of the general market in the City at present.
361. Chairman: Further to a question
which Brian has just asked you there, you talked about the City
being unique in the fact that nearly all the negotiations are
concluded before it gets to a decision. I think you will find
that many of the local authorities up and down the length and
breadth of Britain are also engaged in it, although, I have got
to admit, on not such a grand and professional scale as the City
of London. What interests me is that one of the terms you used
in your earlier answer was about speculation. Now, how much does
that play a part because I know from my own experiences at local
level and in industry and the rest of it that many developers
speculate quite a lot about what can be done with particular sites
and that actually, when the end product arrives, it is usually
quite a bit less than what their expectations were in the first
instance, so how much does speculation play a part in the actual
figures you have produced in the documents here today?
(Mr Rees) In terms of office accommodation,
we find it very rare that a developer chooses to build less than
he is permitted. Usually it is a case of the other way round where
we have to try and rein them in.
362. Chairman: But it sometimes tends
to be a lot more and that is what I am trying to get at.
(Mr Rees) Well, we find that the accommodation
that is being built on site in the City is along the lines we
predict. We have considerable experience and, because we are focused
and specialised in the kind of accommodation of settling in the
City, we have a very clear idea of what can be accommodated on
the sites, so, even before we get to the point of a final permission
on a site, we are very clear about what its capacity is in planning
terms and in development terms.
363. Chairman: So it is fairly accurate?
(Mr Rees) Yes. That might be very different
if you were looking at a mixed-use development or a retail development
or especially a residential development.
364. Chairman: The other question I wanted
to ask you also was the projections on growth, I think it was
in tab 4. The figures you gave were from 1970 to 2001 and showed
7%, I think, and you have predicted the need for even more. There
have been certain decisions taken in the international finance
world since then which have put centres in places like Frankfurt
and other places, so does that not mean that there will be less
growth or are you fairly confident that the predicted growth level
in other parts of your evidence today will still go on?
(Mr Rees) I am. In fact you mentioned Frankfurt
as an example. I think Frankfurt is an example where Frankfurt
had a policy to build buildings which they thought the international
financial market would occupy. They put in place transport, they
put in place all sorts of effective measures to get banks to move
to Frankfurt. It is now a market town with skyscrapers. It does
not have the other attributes of a world city which London can
offer. It does not have the nightlife, the culture, the education,
the skill base and, above all, it does not have people; they live
in villages and they commute in every day, so they do not have
any activity in the centre of their city, in other words. Frankfurt
have found that they cannot take the role that they would have
liked to have taken from London, so simply providing it is only
part of the equation. At the end of the day you have to be able
to prove that you are already a success and that you are a rounded
world city and it is one of those cases where it is almost impossible
to create it. It is not very difficult to lose it when you have
got it if you do not play your cards right and do not plan properly
though and, in London's case, we are trying to hang on to something
where we are an acknowledged success, envied by many others around
the world, and it only takes the slightest mistakes in that process
for that to slide away from us because others are waiting hungrily
to take it.
365. Chairman: So are you very confident
about the growth predictions?
(Mr Rees) I am, provided we can get our planning
right.
366. Mr Liddell-Grainger: I am intrigued
about the employment distribution. You have included the City
fringes of Canary Wharf. Is it fair to say that you are competing
head to head with Canary Wharf, the fringes, and the area outside
the City of London? Do you see them as competitors?
(Mr Rees) To some degree of course there is
internal competition, but Canary Wharf depends on the City and
it is a satellite. At various times in history new centres have
been developed around London. In the 1970s Croydon was developed.
Croydon was a satellite of central London, it took the overflow
from central London and London could not manage without it. Canary
Wharf is the same now. It provides accommodation for firms that
cannot find space in the square mile or do not have a need to
be in the very centre of London depending on the kind of activity
that they are having and the amount of face-to-face meetings they
have, that kind of operation. Similarly, with the City fringe,
there is scope for people to move further away from the centre
and to expand into those areas. The City is not saying that everything
must be within the square mile by any means, but we have to provide
enough accommodation to keep the core of the activity healthy.
367. Mr Liddell-Grainger: One of the
things which strikes me is that the employment of the City between
1971 and 2001, and there are exceptions, but there are enormous
fluctuations. The height was 2000 at 256,000 and it has gone down
to 232,000, but in 1987 when we had the crash, it went down dramatically
from 222,000 to 174,000. It is a bear or a boom market, is it
not? One of the problems is that you are creating speculation
to create the growth, but yet in a volatile market at all times.
(Mr Rees) That is why we averaged out the City
employment in decades for you because it is, as you say, a switchback
with, depending on development cycles and whether banks are prepared
to lend on development, depending on the demand and of course
the supply never comes at the same time as the demand, there is
always this lag in it, this always produces great volatility and
of course the international financial markets.
368. Mr Liddell-Grainger: For all you
are saying that you want developers to be able to build with the
end users in mind, in fact a lot of it is in fact speculation.
(Mr Rees) There has to be a degree of speculation,
that is correct.
369. Mr Liddell-Grainger: Can you say
what percentage, given that there has been a decrease, quite a
large decrease, in City-type employment and in fact in, yes, all
other employment within the City, how much of this new development
has got potential end users? Have you got any idea, and you may
not know the answer?
(Mr Rees) Well, as I have pointed out, the
vacancy rate on currently constructed stock is about 12%.
370. Mr Liddell-Grainger: Is that going
up or down?
(Mr Rees) That is going down slightly at the
moment. It peaks at about 13% and it has dropped back now to about
12. We regard eight as the lowest healthy vacancy rate to allow
scope for people to move.
371. Mr Liddell-Grainger: After 1987,
what was the percentage rate after the crash?
(Mr Rees) After the crash it went up above
about 26% at one stage and there were American cities where it
went over 30% and they survived, just.
Chairman: Mr Elvin?
Cross-examined by Mr Elvin
372. Mr Elvin: I need to follow up some
of those points, if the Committee pleases. Mr Rees, can I just
check with you, that, so far as the supply for office accommodation
is concerned, you have shown the Committee part of the Mayor's
plan and I think we have it at your tab 14. I think it is Exhibit
PWRN and if we go past the photocopy of the cover page, we get
to the table, `Demand for office space, jobs and floor space',
and then we have got on the next page, `Indicative sub-regional
population'. It is right, is it not, that the Mayor, or the GLA,
in its assumptions for growth, does not disaggregate the City
from the Isle of Dogs and that the areas which are taken are much
broader than that? You have the central area, the east, the west,
the north and the south.
(Mr Rees) He does disaggregate
within his sub-regional guidance.
373. Mr Elvin: Therefore, the headlines
figures though are a much broader-based set of figures?
(Mr Rees) Yes, but he then does give specific
figures for the Isle of Dogs in his sub-regional guidance.
374. Mr Elvin: In terms of the Isle of
Dogs, and the Isle of Dogs appears to me perhaps to share some
of the characteristics of Frankfurt in terms of the absence of
nightlife or at least the sort of nightlife that people with families
would be interested in, it does not have the characteristics of
the City in terms of its access to facilities and services in
the evening and one must travel a little further afield in order
to get those?
(Mr Rees) Yes, one would go to the West End,
as one would from the City.
375. Mr Elvin: Indeed. The Isle of Dogs
has the benefit though, does it not, not only of now being on
a tube line, but it is proposed that there be a Crossrail station
on the Isle of Dogs as well in the north dock close to Canary
Wharf?
(Mr Rees) Yes, that is true.
376. Mr Elvin: So in terms of an alternative
location for office development rather than the City, if there
is any issue about not providing quite the level of choice that
an office developer might want, the Isle of Dogs will offer an
alternative with much faster transport links now into the West
End?
(Mr Rees) Not necessarily because of course
it is surrounded on three sides by the river, it is landlocked
and it is gridlocked frequently now by motor vehicles because
a much higher proportion of people accessing Canary Wharf use
cars rather than public transport. Equally, it is that bit further
from the West End and you have to travel through the City to get
to the West End from Canary Wharf.
377. Mr Elvin: How many stations will
it be on Crossrail?
(Mr Rees) It is two stations beyond the City,
Whitechapel and then Canary Wharf.
378. Mr Elvin: So it will only be four
or five stations to get into the West End on Crossrail, will it
not?
(Mr Rees) Indeed, yes.
379. Mr Elvin: So if there is any residual
concern about there perhaps being any deterrent effect on the
City, the Isle of Dogs offers at least as an attractive an alternative
location these days as Frankfurt?
(Mr Rees) Yes, but Canary Wharf itself suffers
if the City suffers by being less than 25% of the amount that
is in the City and, therefore, being a satellite of it.
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