How A French Insurer Became One Of The Best Office Developers In London

Perhaps the gutsiest call in UK real estate over the last decade was the decision by AXA IM Alts to begin speculative development on a 1.3M SF office tower in the City of London in summer 2016.

Britain had just voted for Brexit, and there was no certainty at all that London would remain the financial centre of Europe.

Nine years later, that building, 22 Bishopsgate, is fully leased, rents are increasing, and the property is probably the most valuable single building in the country.

Now, AXA is looking to repeat the trick. 

The investment management division of the French insurance company has commenced speculative development of a 650K SF City office at 50 Fenchurch Street. The project is expected to cost more than £500M, including site acquisition.

50 Fenchurch Street will be followed by a 635K SF scheme at nearby St Mary Axe, where planning has been submitted.

The two schemes will mean AXA has built or lined up more than 3M SF of offices in the City in the past 15 years, making it an unlikely name to put alongside better-known City developers like Brookfield, British Land and Landsec.

The issues today are different to 2016, though the prospect for offices remains far from certain. Yet AXA has become one of the most prolific and successful builders in the Square Mile, managing about £69B of real estate assets. 

“There is a supply-demand imbalance in terms of what's being built there,” AXA IM Alts Head of UK Development Rob Samuel said.

“Inflation hasn't necessarily come off as much as people would have liked, and there has been a lot of uncertainty. That has led to fewer buildings being started and puts us, we believe, in a good place to accommodate requirements at the back end of the 2020s.”

One thing that made the 62-storey 22 Bishopsgate so successful is the amount of amenities wrapped up in the scheme, Samuel said. Of the building's more than 100K SF, those account for about 10% of the net lettable space, including a gym, restaurants and cafés, and dining areas. 

The building is multilet and provides tenants the kind of facilities that might normally only be found in a large building leased to a single occupier. Gyms can only be used by staff of the building and are priced at a level that gives workers at all grades access to a facility that might normally be above their budgets. 

Tenants have flocked there, paying rents of up to £120 per SF. The bet made by AXA and its partners, including Canadian investors PSP Investments and QuadReal Property Group and Singapore-based Temasek, has been handsomely rewarded. 

The site cost about £550M to buy and about £660M to build. But a 2022 refinancing with a £1.25B loan at a 50% loan-to-value level put the value of the building at about £2.5B.

Other developers have undertaken similar strategies in recent years, Samuel said,  so AXA needs to ensure it stays ahead of the pack with 50 Fenchurch Street. First-class health and wellness amenities are key, he said, as is making sure tenants can access communal areas on evenings and weekends to hold their own events. 

The project will include balconies on the majority of levels and public gardens on the 10th level. The scheme will provide 1.5 acres of outdoor space, including space at ground level, AXA said.

Sustainability is key to attracting occupiers, and the building is set to be all-electric in operation, meaning it can be run without fossil fuels. 

When it comes to the construction process, Samuel said, the amount of embodied carbon created by the development has been reduced by 25% compared to older buildings of equivalent size. That was achieved by using lighter steel, requiring less of other materials like concrete.

“When you reduce the weight of the steel, you reduce the weight of the foundations, which has more carbon in it, and so you get this multiplier effect,” Samuel said. 

50 Fenchurch Street is ultimately owned by a development fund AXA IM manages, Development Venture V, documents filed at Companies House show. It is part of a series of development funds AXA has used to build in the City. In 2024, it secured a £480M development loan from debt fund manager Cale Street to build the project, 

Samuel said the imbalance between supply and demand gives AXA a high level of confidence in building a 650K SF scheme on a speculative basis, with the 63 St Mary Axe project coming down the tracks a couple of years later. 

Prime City of London rents have hit an average of around £100 per SF, well above the traditional ceiling of around £80 per SF that held true for about two decades.

Meanwhile, the supply of new offices has shrunk below historic standards since 2016 as a series of wider events curtailed the appetite of developers to build large new schemes: first Brexit, then the coronavirus, then the spike in costs caused by the war in Ukraine, and, finally, the fall in values precipitated by rising interest rates.

But occupiers are willing and able to pay higher rents for the best buildings, Samuel said, pointing out that rent as a proportion of total outgoings for the average corporation has dropped from more than 10% 20 years ago to about 5% today. 

“So the affordability of higher rents is there,” he said. “You look at a long period of low inflation and, therefore, an associated low cost of money [until 2022]. There was availability of property and there was nothing really driving those rents on. We do have a confidence that higher rents are here for the longer term.”