In centuries gone by, the location of an embassy was symbolic of a country’s standing. It was vital for foreign governments to announce their importance by housing their embassies inside majestic, historic buildings with an address of matching prestige. Such competition for opulence, however, has now been trumped by the cost-conscious concerns of modern governments as they struggle through a global financial crisis.
There are a number of factors which are triggering an extraordinary wave of migration, as missions in London are relocating to less central areas. Although rising rent prices are one of these factors, a more crucial element is the expiration of embassy leases. Many of London’s embassies are currently leased from the Duke of Westminster’s Grosvenor Estate. However, a number of these long-term leases and nominal ‘peppercorn’ rents were agreed over 100 years ago. The expiration of these leases is a major contributor to the exodus of foreign missions from their central London location.
Whilst Belgravia, Kensington and Mayfair have long been recognised as diplomatic postcodes, embassies are no longer under pressure to maintain such a prestigious facade, and are free to move to less distinguished areas without prejudice. The US’s decision to move to Nine Elms in Battersea (south of the river), is the most striking example of such transition, and could well be a crucial catalyst for a number of other embassies relocating to similar areas.
A new survey entitled Diplomatic Property: Conversion to Homes, undertaken by estate agent Wetherell, in association with Diplomat magazine, confirms this. By analysing the property portfolio of the diplomatic missions alongside a review of recent changes and reported or planned relocations for embassy and other diplomatic buildings in central London, a range of moves were discovered.
These relocations are not confined to countries from any one particular continent: they are a widespread fact, which can be confirmed by the details of some specific embassy changes of address. For example, in March this year, Cushman and Wakefield, which advises the Dutch government, announced plans for the Netherlands’ London Embassy, currently based on Hyde Park Gate, to move to Embassy Gardens in Nine Elms in 2017. The UK managing director of Ballymore Group, John Mulyran, sheds light on this move, stating that ‘Embassy Gardens has been recognised by both UK and international audiences as an exceptional one-off landmark development which will be at the heart of a new and exciting destination for central London.’
The Chinese government is following suit and selling its huge Portland Place headquarters. They have reportedly appointed consultancy firm CBRE to find a new base, and the 13-acre south London mail centre in Nine Elms is rumoured to have been shortlisted as a future location.
The Canadian High Commission has announced plans to consolidate its diplomatic activity in the UK in a single, central location in historic Canada House on Trafalgar Square. Its diplomatic premises on Grosvenor Square in Mayfair will be sold and international real estate advisor Savills has been selected and awarded the contract. ‘We have had exceptional interest in the property at 1 Grosvenor Square,’ said High Commissioner Gordon Campbell, ‘but an international firm like Savills will extend our reach to interested parties all over the world and help maximise the value of our building in Mayfair for the benefit of Canadians.’
In light of Greece’s economic struggles, it is rumoured that the country is selling its high-end properties in Europe, including its Consular residence in Hyde Park. The country’s need to raise €50 billion before 2020 will be aided by the sale, as similar properties in the area are thought to have sold for around £12 million. Economic considerations are clearly a motivating factor for governments in deciding not only whether to move, but also where they should move to.
Although unconfirmed, there has been great speculation about the Nepalese government putting their embassy on Kensington Palace Gardens – a street known as ‘Billionaires Row’ – up for sale. In 1937, the building was gifted to the Nepalese, in thanks for the Gurkhas’s help to the British Armed Forces. The Nepalese currently pay a nominal £1,000 a year in rent to the Crown Estate. As one of the most expensive and exclusive areas in the world, buildings on this street are rumoured to be valued at over £100 million. For a country like Nepal, the profit that could be made from downsizing to a more modest diplomatic base could have a significant impact on the country’s economy.
After all, the total value of the great ‘embassy sell-off’ is approximately £3 billion. These properties are being converted into high-end luxury homes, which estate agents are positive will sell. As witnessed in the residential market, those local people who traditionally lived in areas of London such as Mayfair, Knightsbridge, Kensington and Chelsea are being pushed further afield in order to accommodate wealthy foreigners, typically from Russia and Asia. Property at the top end is seen as a safe investment for such buyers, as it rarely suffers in times of economic uncertainty. The current financial crisis has confirmed this fact, as shown by the recent £40 million sale of the former Brazilian Embassy on Green Street in Mayfair, for conversion into a single 20,000+ ft mansion.
Further research by Wetherell has discovered that the average price per square foot of property in Mayfair is £4,500. In this context, the sale price of the Brazilian Embassy is not quite so startling. It certainly emphasises to other missions the value of properties which, in the past, may have been taken for granted. Of the approximately 165 embassies in London, 20 are now known to be in the process of sale consideration. The sizes of these missions are irrelevant: whether they are a small mission of one or two people (as in Tajikistan), or as large as that of the US, each property will fetch a significant price. The figure below shows the relative values of diplomatic properties across the current key London addresses.
Does this trend in sales indicate that a new diplomatic neighbourhood will soon be established south of the river, as embassies relocate from their central London sites?
Looking at the reasons behind the movement of the US mission can shed some light on the phenomenon. Wetherell reports that the US sold their current property at 24 Grosvenor Square for £500 million. They purchased their site in Nine Elms for the higher figure of £600 million. On the one hand, the US’s move has been triggered by what is arguably an individual requirement for a high security compound that could be isolated from the rest of London. Such complex needs are not shared by all other embassies, however, and thus they are unlikely to consider relocating until their current rental periods expire. On the other hand, the US government lists several true benefits of their new location, including transport connections, close proximity to Westminster, and the environmentally friendly building. These are all key reasons for a move to Nine Elms, and are also considerations likely to be shared by other embassies.
The demands of modern diplomacy have developed significantly since the time at which these majestic properties were first bought. Such historic homes are no longer practical in meeting the demands of today’s politics. Locations such as Battersea offer embassies the chance to connect to Westminster with excellent transport links, to increase their security away from the tourist-oriented West End, and even to consider environmental requirements that current governments prioritise. Combined with the expiration of long leases on ‘peppercorn’ rents, and the cost-conscious attitude of governments during the global financial crisis, it is logical that these missions are moving out of their neo-classical palaces – and (for some) benefiting financially in the process. As a result, Nine Elms is becoming the the all-new hot destination for diplomacy in London.