Brand value

Has the Walkie-Talkie just been branded as uncool? It has been “inspiring” a lot of pretty caustic comments from architectural correspondents. I liked this piece by Ned Beaumont in the Guardian. The Guardian also had a debate on whether it should be demolished! I’m sure that the development teams (or their PR teams) at Land Securities and the Canary Wharf Group are wondering what they did wrong. They almost certainly do not conform to the caricatured Bond-villain developer-tycoons implied in the press. Isn’t it the job of planners and their political masters to regulate this stuff anyway? To be fair, Peter Rees, my former colleague at UCL, gets a bit of stick. Not surprisingly, the main focus of the articles was on architecture as the physical materialisation of broader (presumed to be undesirable) socio-economic shifts and the irreversibility and sheer intrusiveness of the newly branded carbuncle. All quite entertaining stuff. Being a lapsed chartered surveyor, it got me thinking about how becoming iconic (notorious?) for the wrong reasons has tarnished the image of the building and affected its value.

Add all this to the “death ray” infamy and I suspect that the signature of signature architect Rafael Viñoly has become less valuable.   Has the building itself? Almost certainly. It’s perhaps worth contrasting 20 Fenchurch Street (The Walkie-Talkie) with 30 St Mary Axe (The Gherkin). The latter quickly established itself as the top location in the City. It became a desirable office address and an office that many wanted to visit. It would be strange if such iconic status did not affect rents, letting times, leasing incentives, renewal rates, void periods, investor interest etc. That is – the expected future income from the asset, the risk of that income and the return that investors are prepared to accept for that income.  I’d expect this to work in the opposite way for 20 Fenchurch Street.

By how much? That’s pretty tricky to answer. What are we trying to measure the effect on value of? Its core design attributes – function and form? The new designation by Building Design as Carbuncle of the Year?  I suspect that it has been designed to a very high specification – with few of the issues that affected The Gherkin regarding its ventilation and air-conditioning. It’s the perception of its form that is likely to have changed and, I suspect, that this will decrease demand from tenants and investors with implications for expected future income etc.

However, it was reported to be 90% pre-let. Also, less valuable compared to what? How many other brand new 34 storey plus sky garden office towers in the same district have been built recently (i.e. in the last few months) that we can compare it to? Compared to how valuable it would have been if it had been it had not “won” Carbuncle of the Year? What if, like the Gherkin, the architect had won the Stirling Prize for it instead?

These are difficult counterfactuals. There have been a few studies that have tried to identify the effect of design quality, design-related awards or designer reputation on asset values. As suggested above, it’s tricky to isolate the effect of one attribute on the value of a building given that there are so many determinants of value (tenant quality, location, leases, size, age, facilities etc.) – but it is a well-trodden econometric path. I suspect that the effect will be relatively low – around 2%-3% – but absolutely huge. On a £1 billion building, 2%-3% represents £20-£30 million. On the other hand, 2%-3% is well within the margin of error of any appraisal.  I’d also struggle to prove it in the same way that I would have struggled to prove that the Gherkin would sell for a premium to other non-iconic prime office stock.

The stigma of Carbuncle of the Year may persist or it may dissipate in terms of value. Personally, in my untrained opinion, I think that the building is a slightly positive addition to the London skyline. Like the Gherkin, I’ve mixed gut reactions (not as bad as it sounds) to the Walkie-Talkie. Without much conviction either way, sometimes I like it, sometimes I don’t. I kind of envy the architectural critics who apparently weep at the sight of it. I rarely have such strong reactions to buildings – or anything for that matter. My guess is that it will become an established part of London’s ‘moneyscape’, grow into an iconic or trophy asset and, possibly, even end up being protected. So the stigma effect on value could well disappear over time and it might just become one of the cool kids.

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