How WWII bombs influence office rents today
As we head into winter, one of the primary concerns in the UK is the poorly insulated housing stock that requires us to use more heating than necessary. Compared to the UK, German housing stock is clearly much better insulated, mostly because there are very few houses left in Germany that date back to before 1945. Meanwhile, in England and Wales, some 20% of houses were built before 1900. Which makes German comedian Henning When ask: “Who won the war now?”
But the Second World War has left its traces in many unexpected areas, one of which are office rents in central London. If you live in London, one of the best books you can buy are the Bomb Damage Maps 1939-1945 that shows maps of all of London including the buildings that were destroyed by German bombs during the Blitz. It truly makes you see your neighbourhood in a different way.
Wherever a bomb destroyed houses during the war, new buildings could be constructed and because after the war, living and office space was scarce, local councils encouraged the construction of higher density buildings in the places where German bombs destroyed pre-existing houses. Gerard Derricks and Hans Koster traced the location of these bomb sites and looked at the buildings that are there today and the rents commanded by these places. Higher density agglomeration was associated with increased bomb damage during World War II. But today, higher density buildings mean higher rents because they are more modern, more energy efficient and in general just better suited to the requirements of modern businesses. They found that buildings with higher density can command an 8.5% higher office rent and doubling employment density in office buildings increases office rent by 25%.
Link between building density and bombing density in London
Source: Derricks and Koster (2018)
As a result, they find that thanks to the Blitz total annual office rents generated in London are some £4.5bn higher than without the bomb damage from the Germans. That is some 1.2% of the GDP of London. So, thanks Germany. Which gives me an idea. My office is near the Barbican, the brutalist estate that was built after the Germans bombed the neighbourhood to pieces. My usual remark about it is that it is so ugly, I would pay the Luftwaffe to come back and bomb it again. Turns out, the Germans would do London a favour if they did. Obviously, I am kidding, so don’t complain, please.