London has a breed of specialist developers that are known as rooftop or airspace developers. What these developers do is build on top of existing and occupied buildings — mostly residential. Firm examples include Upspace and Apex Airspace. According to this recent WSJ article, the city is also making moves to relax regulations so that more of these top-ups can be completed.
Brokerage Knight Frank estimates that in central London alone there are probably 23,000 buildings that could support a few extra floors, resulting in upwards of 41,000 new homes. I have done early feasibility studies for similar projects here in Toronto and they’re not simple to execute. But building structures are typically constructed with a factor of safety and so, in some/most cases, you can build a little on top without doing any additional reinforcing. (Note: I am not a structural engineer.)
In any case, the benefits of airspace projects are obvious. You’re creating additional supply in a tight housing market like London. Similar to Toronto’s laneway housing program, it’s not going to completely solve the larger problem of affordable housing. But every bit of new housing helps, regardless of where it lands on the spectrum of affordability.
One of the drawbacks, which is the headline of the above WSJ article, is that penthouse residents are getting demoted in the process. They’re going from penthouse to sub, or sub-sub, or sub-sub-sub penthouse. They also need to endure a bit of construction right above them. Cry me a river?
But what is also important to point out is that there are lots of buildings out there which are facing capital expenditure shortfalls. They have maintenance and repair demands that simply aren’t adequately funded. Adding additional floors can be a way for these buildings to generate that cash and, in some cases, residents are even partnering with airspace developers to share in some of the profit upside.
Not surprisingly, these sorts of arrangements are seemingly being met with a fair bit of support. Because in these instances, your options are basically as follows: Either you cut a repairs and maintenance check right now or you support a bit of development and then hopefully you’ll be the one receiving a check in the future. I suspect we’ll be seeing a lot more of this, not just in London, but in cities all around the world.
Photo by Sometimes I Snap on Unsplash
I can’t agree that every bit of new housing helps. If it’s someone’s second (or nth) home, or if it’s just buy-to-leave (there’s a lot of that in London) then it helps no-one, but degrades the environment a little more. These airspace developers aren’t doing this for the public good.
Hey Brandon, this is a great track to pursue along with your efforts covering Laneway projects. When you think of developing rooftop cashflow enhancement opportunities, it’s always been about cell towers and point-to-point microwave stuff, usually with very good yield. The investment yield that you mention is a very real opportunity for building owners to capitalize on and I would call that the “hard yield”. There might be a consideration as well for what I may call the “soft yield”, which is a) the overall increase in housing supply – which is a benefit to cities anywhere, b) a great marketing opportunity for developers to be seen wearing white hats and championing creative ways to add real value to their properties.