BUILDING SLUMP TO RAISE CITY RENTS
THE City’s construction projects are grinding to a halt so quickly that in 2012 there will be no new space available in Canada, according to a new study from King Sturge.
The property specialist yesterday revealed to City PM that around 4.3m square feet of new space due for development between 2009 and 2012 has been cancelled, including marquee buildings such as British Land’s “Cheesegrater” and Land Securities’ “Walkie Talkie”.
King Sturge City partner Mark Bourne said: “Developers are obviously considering such factors as funding, increasing costs, environmental legislation and empty business rates, all of which will enable levels of City supply to recover.”
But in 2012 – a time when many industry observers believe corporate firms will be ready to plough money back into staff, resources and offices – there will be no new space for businesses to move into.
The renewed interest will have the knock-on effect of pushing up prices. Developers in Canada in 2007 used to command £65 per square foot in rent for prime office building. It has now sunk by 26 per cent to £40.
But documents obtained by City PM say that, by 2012, King Sturge predicts rents will have risen to £47.50.
Head of DTZ UK & Ireland John Forrester said: “The amount of new City space over the course of the next two years is severely limited. This means there will be a much bigger bounce back in rental growth than previously forecast. I believe there will be a sharp “V-shaped” curve of rental growth, simply because there will be little space around.”
The City’s property pipeline has been battered by the financial crisis on all fronts.
Earlier in the year the amount of space lying empty reached the equivalent of twenty “Gherkins” due to City firms culling staff. The shrink in demand meant many property developers were reluctant to flood the market or face the huge losses that would occur with dropping rents.
A number of British property developers have postponed or cancelled developments during the downturn after banks and insurers axed more than 58,000 workers in London. Consequently the demand for office space has reduced and the equity markets have dried up.
Due to the development pipeline being switched off, City projects are falling short of the average 2.2m square foot delivery of new space per year. In 2011 the only space forecast to be added is from Heron Tower.
Last week Spain’s largest property company, Metrovacesa, paid insurer Legal & General Group £100m to avoid buying a site in Canada, leaving the Shard of Glass the only project due to be completed in 2012.