These are companies offering top-tier offices to booming AI sector

One Triton Square is not any old office. It is an ultra-spacious ‘engine for innovation and growth’, a piece of ‘talent infrastructure’, with private terraces, amenities to support well-being, and parking for 400 cycles.

These are some of the facilities at the deluxe British Land building which will be the central London base of US tech firm Anthropic, maker of the Claude artificial intelligence (AI) system.

Does the requirement for such premises suggest that British Land or another Real Estate Investment Trust (Reit) could be a source of innovation and growth for your portfolio, as more workers return to every type of office?

The signs are there, especially given the surging demand for elite blocks from technology groups. The property consultancy CBRE forecasts that these employers will increase their London office occupancy from the current 1.5m square feet to 4m square feet by 2033.

At a time when there is little new supply, legal and financial firms are also seeking high-spec digs. By 2028, estate agency Knight Frank says all top-tier offices in the City will be fully let.

Matt Norris, manager of the TM Gravis UK Listed Property fund, says that Reits that want to thrive in challenging times are exploiting the ‘talent infrastructure’ trend.

‘Talent infrastructure’: One Triton Square is not any old office – it is an ultra-spacious ‘engine for innovation and growth’

He said: ‘The old office pitch was square footage – the new pitch is service, quality and experience.

If you want fast-growing AI businesses as tenants, you need beautifully designed, hotel-style premium space in the right postcodes. These are talent magnet buildings that aid recruitment and productivity.’

Such accommodation’s popularity may seem surprising, given the seemingly existential threat to jobs posed by AI.

The giant £4.4billion Land Securities Reit, which used to be one of the most powerful players in offices, is now shifting into retail and residential development.

But estate agency Savills points to a study from the European Central Bank showing that ‘AI-intensive firms tend to hire rather than fire’.

AI corporations appear convinced that creativity flourishes in an office environment and clever Reits cater for this stance, describing an office as a ‘campus’, with a ‘collegiate feel’.

You may already invest in US tech titans. But if you would like to take a chance on the Reits that are aiming to transform their fortunes by supplying the buffed-up London workplaces these free-spending businesses seek, here’s your guide.

Hip addresses

One Triton Square is situated in the ‘Knowledge Quarter’.

This is the name given to the location that extends east from Fitzrovia to the gentrified area around King’s Cross where Project Prometheus, the AI group led by Amazon founder Jeff Bezos, is set to establish a UK base.

Also moving into the area are Open AI, maker of the ChatGPT AI system and DeepMind, a division of Google group Alphabet.

Other talent infrastructure hotspots include Silicon Roundabout, close to Old Street in East London, and Broadgate in the City, a 1980s scheme which has been buffed up by British Land into the kind of comfortable and eco-conscious surroundings in which tech, legal and financial talent thrives.

Higher rents compensate for refurbishment outlay as Knowledge Quarter space is growing short. 

Hunter Booth of Savills says that AI firms with a financial focus are on the hunt in the City, while those who need to lobby are heading to Victoria or Westminster for proximity to Parliament.

British Land

British Land, a £4billion member of the FTSE 100, boasts not only such assets as Broadgate, but also the Paddington Central campus and the Canada Water project in south-east London. 

The Reit is also a leading operator of retail parks, like Vangarde in York.

During the pandemic, it was thought that working from home and shopping online would become the norm. British Land took a counterintuitive approach which has paid off. 

At a recent trading update ahead of the full year results on May 20, Simon Carter, British Land chief executive, said that little room was left available in offices in the right locations ‘despite ongoing macroeconomic volatility’. 

Rents on British Land offices have risen by 12 per cent over the past year.

Andrew Saunders of Shore Capital and eight of the other analysts that follow British Land suggest existing investors continue to hold, while enjoying the 5.9pc dividend yield.

The remaining seven analysts view the shares at 386p as a ‘buy’, targeting an increase to 450p.

Derwent

London offices make up about 98 per cent of Derwent’s portfolio. The bulk of these buildings are in Fitzrovia and neighbouring parts of the West End. The rest are in East London.

As Norris points out, Derwent’s Network building in Fitzrovia offers everything an AI client could desire such as ‘wellness facilities and top-tier sustainability’. This explains why it has been fully pre-let to the US AI analytics platform Databricks.

Despite a programme of disposals designed to reduce debt, the share price of this £1.9billion FTSE 250 Reit is still well below net asset value (NAV).

Since this represents an opportunity to acquire some high quality office real estate at a bargain price, six analysts, including Berenberg, consider Derwent a ‘buy’ at the current 1,741p, targeting a price of 2,210p. A punt for the adventurous and patient.

Great Portland Estates

Shares in Great Portland Estates (GPE) have tumbled by 19 per cent to 302p this year, thanks to fears that AI would destroy jobs which would spell disaster for this £1.26billion FTSE 250 Reit’s offices in Fitzrovia, Mayfair, the City and Midtown (the Holborn neighbourhood).

But as Norris points out, AI tenants who want flagship HQ space now occupy about 12 per cent of GPE’s office portfolio. Space has recently been let to Vanta, an AI platform and to Quantexa, an AI software company, which will be enjoying the river views from the ‘cascading terraces’ at Derwent’s Delft block at London Bridge.

Again these shares are for those with the nerves to bet on a recovery. More on Derwent’s turnaround will be revealed in the results on May 21. Meanwhile the most optimistic analysts see the shares moving up to 378p.

Workspace

The rise of the talent infrastructure building is bad news for the providers of less aspirational offices. Top ‘Grade A’ premises made up 92 per cent of the offices being pre-let in the first quarter of this year, as new research from Savills underlines.

The downbeat outlook for offices that are smart, but not elite, can be seen in this year’s 16 per cent fall to 334p in the shares of the Workspace Reit.

The small and medium-sized business clients of this provider of flexible space are feeling the pinch from a tough economy and tax hikes.

Moreover US activist investor Boaz Weinstein of the Saba hedge fund is calling for the Reit – which stands at a deep discount – to be wound down.

The Reit’s new management wants to become a budget landlord for start-ups.

The broker Jefferies which considers Workspace a ‘buy’ is targeting an increase to 424p.

This represents a large gamble on a makeover of this Reit – and the quixotic behaviour of Weinstein. But more workers are back in offices and not every employer can stretch to ‘private terraces.’