“Don’t ignore the market dynamics,” was one of the stark warnings given to developers at EG’s London Development conference last week (p58). The amount of office space that could come to the market over the next few years is a worry, for some at least.
Professor Tony Key of CASS Business School examined two models of employment growth to 2016 for the capital. One, the London Plan, estimates growth of 2.4% pa. The second forecast, from GLA Economics, predicts a more modest 1.8% pa growth.
Key pointed out that, even if the highest predictions of job creation prove correct, 43% of the total office stock required to accommodate it is already built or under construction, and 94% is in the pipeline.
For the conservative estimates, the situation is even worse, with 70% of the required office space already built or under construction and 150% in the pipeline.
It was a point also raised by Steve Lang, associate director of commercial research at Savills, the sponsor of the conference. He warned: “Don’t ignore the property cycle. There is a potential 35m sq ft of space that could come on stream, but it must be staggered.”
He also warned that a lack of movement with proposed transport improvements would have a detrimental effect on London’s property industry, and could even drive away demand. “Crossrail opens up access to a wider population of potential workers,” he said.
Other speakers said rising fuel and construction costs were pushing green development higher up politicians’ and developers’ agendas.
EG columnist and MP John Gummer pointed out that the amount of energy consumed by commercial buildings would need to be reduced by 40% by 2010. “Using less water will be essential by 2010. Climate change will dominate development,” he added.
The silly season is fast approaching, speeded up, some might say, by the World Cup (see opposite). But before the bags are packed and the sun lotion bought, there are one or two deals to be concluded.
One of the biggest winners of the last month was Land Securities, which concluded deals totalling 137,000 sq ft at Cardinal Place, SW1. Experian is believed to have paid around £60 per sq ft for 47,000 sq ft — a significant increase for the developer, which was achieving £55 per sq ft on deals a year ago.
The most recent signing at Cardinal Place was to Microsoft, but the terms of the deal remain confidential. The software giant has taken a total of 90,000 sq ft in two buildings.
● A milestone was passed when £100 per sq ft was achieved in a deal at 25 Hanover Square, W1, in May. A champagne cork or two surely popped, but the achievement now leaves a hole in the market. The second building to achieve £100 per sq ft, or indeed rents reaching £105 per sq ft, is just not as impressive as breaking the £100 mark. So what will the next Holy Grail of headlines be?
● Over in the City, the Gherkin has shifted another floor. Law firm Kirkland & Ellis finalised a deal to add another floor to the two it already leases. This leaves just seven floors to go in the building, which was completed in 2003.
Developers with plans for towers of their own should take notice of the recent press coverage that Foster & Partners’ icon has attracted.
Swiss Re’s tower was featured during architecture week (16-25 June) when the premiere of a film about the tower’s transformation from hated building to icon was shown. However, viewers of BBC London obviously have not got past the first feeling, as the gherkin also made it on to the shortlist of the capital’s ugliest buildings.
Viewers voted it fifth most ugly. What may alarm architects is that the more mature tower, Centrepoint, was deemed less ugly, coming in at sixth place.
It was the 19-storey tower in Colliers Wood, SW19, that topped the poll, with 52% of the vote. Let’s hope London’s future towers win over the public more effectively.
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“The opportunity to socialise with clients and contacts is always welcome, and any feel- good factor is good for business.” Jonathan Saxon, Knight Frank “The country is in the grips of football fever, but that is not to say that business is on hold. Far from it. We have not seen any decrease in deals, but perhaps an increase in football chatter around the place. The market as a whole is still buoyant, and the spirit of the World Cup can only add to this. If England go all the way, a feel-good factor will engulf the country and add to the property boom.” Tony Horrell, Jones Lang LaSalle “We have been holding client dos, and taken some clients out to the games, which has built up a relationship with them. Business certainly hasn’t slowed, and we are as busy as ever. If England win the cup, there might be the odd day taken off with hangover.” Penny Hacking, King Sturge “Any good sporting event, particularly one in the summer, lifts the spirits of our industry and, from our experience to date, the World Cup is only helping business. England going further in the competition will undoubtedly help business and, ever the optimist, were they to go all the way then I believe we would see an upturn in deals, with yields continuing to harden and rents flourishing. But seriously, it will certainly give us an idea of how the Olympic Games will affect the property industry when London hosts he event in six years’ time — and when, I have no doubt, everyone will be very upbeat.” Alistair Elliott, Knight Frank “Employers now recognise that major sporting events provide an opportunity for team bonding and client entertainment, and many are providing facilities to watch important games that begin during working hours. If England wins, I suspect the feel-good factor will be beneficial to us all.” James Young, Cushman & Wakefield |
Overall availability is falling, with the West End seeing the largest drop both month-on-month and against the same period last year. This is the result of very little stock coming to the market and more space being withdrawn as companies take up space in their existing buildings.
While take-up overall is up on last month’s figures, it is down on the same period last year. The City saw a slight improvement on its first-quarter figures. The South Bank remains sluggish, but deals such as the one possible at Palestra could boost the area’s performance.
The increasing amount of space being withdrawn from the market hit a record high in the second quarter. The level of withdrawal is primarily the result of an increasing number of companies opting to take existing space or reoccupy space intheir buildings.
Source: London Office Database
