A Steal Of A Deal: Inside Olayan And Chelsfield's Revamp Of The Knightsbridge Estate
It can be hard to get your head around the idea of a slice of Knightsbridge between Harrods and Harvey Nichols being a bit run down. Knightsbridge is after all the area of London synonymous with high prices and luxury real estate. But that soft spot existed a decade ago, until a unique opportunity arose, and Chelsfield and Olayan jumped at it.
In 2010, Irish investor Derek Quinlan was in a fix. He owed a variety of banks more than €2B, and the credit crunch and Irish banking crisis meant that they wanted it repaid yesterday. He had built up a portfolio of trophy assets in a debt-fuelled deal spree between 2004 and 2008, and now he needed to sell.
The Knightsbridge Estate was one of those assets. At 3.5 acres of shops and offices, it was big, the location was one of the most famous in London, but Quinlan and the pension funds that had owned it before him hadn’t invested in its upkeep, and it was looking dowdy.
Chelsfield originated the deal for Saudi investor Olayan to pay £580M for the estate, one of the biggest London real estate deals of that year. It was a time of great fear. The financial crisis was still raging, and it was a massive investment in a complex asset. But 10 years on, a major overhaul of part of the asset is reaching completion, and the deal is looking like a steal.
Chelsfield has led the redevelopment of 1.5 acres at the northern tip of the estate, to create a new scheme that will include flagship retail units, office space, a restaurant and, Bisnow can reveal, rented apartments that will be one of the first luxury build-to-rent schemes in London.
The two directors leading the project took Bisnow inside the redevelopment, which topped out late last year and will be handed over to retail occupiers this autumn. From building meters away from London underground tunnels, to finding 100-year-old plans to restore original facades, and understanding the needs of luxury retailers in the digital age, it has been a complex project, but one that is justifying the plunge Olayan and Chelsfield took in 2010.
“We recognised that it was an unloved piece of real estate in an amazing location,” The Knightsbridge Estate Senior Asset Manager Sarah Waller, who is leading the project, told Bisnow.
At the time of the purchase, the shops on the stretch of Brompton Road between Harrods and Harvey Nichols were a strange mix, considering the two swanky department stores that bookend the estate: cashmere stores, tourist trap luggage retailers and slightly shabby cafés alongside some mid-market and higher-end fashion stores. The buildings date back to the end of the 19th century, but in many cases the ornate original facades had been overlaid with drab mid-20th century facias, especially at street level.
Chelsfield, which is run by veteran investor and developer Elliott Bernerd, alongside Olayan set about straight away improving the retail offer to befit the area, and a combination of its asset management and the general market recovery have made its investment in the Knightsbridge Estate look savvy: retail zone A rents have risen from £560 in 2010 to £925 today, according to Cushman & Wakefield. Retail capital values have risen from £14K per SF to £31K per SF, and while the scheme is not entirely retail, this indicates the value is likely to have doubled.
Along Brompton Road the retail facades have been renovated, so that the street level matches the originals above. The tenant mix has been improved and luxury brands attracted, such as Watches of Switzerland, which earlier this month decided to expand into a second unit at 53 Brompton Road as well as its existing store at number 47-51. The new unit will be a dedicated Rolex room, and between the two units sits a Patek Philippe store.
But the owners had a larger, longer-term vision, too, and so embarked on a £150M revamp of 1.5 acres at the northern end of the estate, designed by architect Fletcher Priest.
The original facades to the buildings have been retained and renovated, and new buildings developed behind this. On the retail side, 11 small, shallow units on Brompton Road and round the corner on to Sloane Street have been redeveloped into seven flagship retail units totalling 80K SF.
The scheme will also comprise 35 luxury rented residential units built around a new courtyard, 66K SF of offices and a flagship rooftop restaurant. The pavement on Brompton Road has been widened, one entrance to the Knightsbridge tube entrance has been moved, and another, completely new one, was built.
“The main value of the scheme is in the retail,” Waller said, and the seven flagship units of differing sizes are already starting to find tenants. Burberry has agreed to lease a 16K SF, four-floor unit at 1 Sloane Street, at the apex of the triangular site. Chelsfield declined to comment on the story, but last year Apple was reported to be taking another 20K SF unit.
Chelsfield and Olayan have built the retail element of the scheme to appeal to the modern needs of luxury retailers. It dug a basement down to three levels and incorporated a vehicle lift, to create an underground service yard for tenants. This means deliveries to stores are made underground rather than from the street or an above-ground service yard, reducing the chances of a smash-and-grab raid or multiple daily deliveries having to be made through the stores.
The company has worked hard to capture data that will lay out the location’s appeal to retailers, which are becoming increasingly sophisticated in how they use stores.
“Increasingly, global luxury brands see stores as part of their customer acquisition costs,” the Knightsbridge Estate’s Rebecca Guzman Vidal said. “They have huge media budgets, and increasingly see renting stores as part of that. A flagship store is a living, breathing brand engagement space. It is up to us to persuade them that putting that store in Knightsbridge will see them succeed, and we have the data to do that.”
Examples include not only typical footfall stats, but also data from global tax refund service Global Blue, which highlights the number of wealthy shoppers in the area. Guzman Vidal also said data shows Knightsbridge has less crossover with other luxury shopping destinations like Bond Street or Regent Street than brands might imagine.
Having four-storey units means that retailers can incorporate different elements into their stores, such as VIP areas or cafés, like Louis Vuitton is doing at its new store in Osaka, Japan, where it is opening a café and restaurant to increase footfall and provide a different offering to customers.
The residential element of the scheme is somewhat unexpected. Knightsbridge is best known for super-luxury residential schemes sold to oligarchs, like One Hyde Park. But Chelsfield and Olayan have chosen to create a rented residential scheme. With 35 apartments it will be small, but target the luxury end of the rent rental market, something that has not been done in London this cycle.
“The obvious thing would have been to build residential units for sale, but the Olayan group has a multi-generational view, and they wanted to be able to retain control of the whole estate, and so the best way of doing that was to have rental units,” Waller said. “There are a lot of empty units in luxury residential for-sale schemes, and we were very keen to have a development that was lived in and active; a scheme for rent does that.”
Talks are ongoing with potential operators for the rooftop restaurant scheme, and also the 66K SF of offices, which could be leased to a single occupier or broken up.
The development process has been far from easy. The project essentially sits right on top of Knightsbridge tube station, and the basement element meant that the contractor was often digging within a couple of meters of operational underground tunnels.
To make sure the scheme looked cohesive, the original architectural plans for the facades, more than 100 years old, were dug up and used in the design process.
“The easiest thing would have been to knock the whole thing down and start again,” Waller said. “But we wanted to retain the character and charm of the turn-of-the-century buildings whilst still achieving modern, fit-for-purpose accommodation.”
Waller said Chelsfield and Olayan will look at undertaking major redevelopments on the other 2 acres of the site in the future, but for know, all its efforts are geared toward the completion of this first major overhaul.
Buying Knightsbridge at the bottom of the market when not everyone saw the potential has thus far seemed to pay off.