The City of London remains one of the UK’s most muscular office markets. Research carried out for the Corporation of London suggests there will be an extra 90,000 workers in the City by 2020, and that the amount of office space will increase from 81m sq ft to 105m sq ft over the same period.
But with 24m sq ft planned over the next 15 years, is the City heading for oversupply?
A sizeable chunk of this space will be delivered within the next three years, and 10m sq ft is expected by 2010 – just when take-up is forecast to drop (see graph, p86).
Sarah Bate, head of Knight Frank’s London research, estimates that, between now and 2009, around 8m sq ft will be either under construction or in the pipeline. What is more, a further 14m sq ft is in the pipeline awaiting prelets, which could possibly come on stream before 2010. “The future supply in the City is in the hands of a limited number of people, and everyone wants to be first to deliver into an improving market,” she says. “If those same few individuals have the same views on ideal completion dates, we could be heading for a supply bubble.” On basic calculations, Bate estimates that 90,000 new workers would require an extra 15m sq ft, “so 24m sq ft extra is far too much”.
The danger of oversupply is clear when pipeline figures are contrasted with historical take-up. In the City, this has averaged around 5.7m sq ft pa over the past 10 years.
Nick Baucher, partner at GVA Grimley, estimates that just over half of the space delivered will be additional stock as opposed to replacement offices.
Some developers, such as Delancey with its £200m scheme to develop The Rolls building in Fetter Lane, EC4, are cautiously delaying construction. Paul Goswell, Delancey’s managing director, says: “We are at that interesting point where we are hovering on the brink. We haven’t pushed the button to develop speculatively, but market conditions are certainly strong, so it is very much in our mind to do so.”
Goswell is wary of the possibility of bringing a new office building to a crowded market, although he mixes caution with optimism by adding that he does not consider it likely that the City will end up with too much office space.
Never the less, Delancey is not building The Rolls yet. Goswell points out that there is a 29-month development time and adds: “You always have to keep an eye on these things, but at the moment I don’t think there is anything like the prospect of oversupply.”
Matthew Warner, head of central London development at Lambert Smith Hampton, points out that there are “plenty of sites with existing consents”, and says that timing is certainly the issue.
“Everybody is on the brink,” he says. “Developers are all watching each other’s schemes and taking note of what others are doing.”
Advisory team
Developers probably have a longer-term view than agents, but the Corporation of London has perhaps the longest term view of all. Peter Bennett, head of the corporation’s advisory team for City property, is not overly concerned. “Those who look forward and fear an oversupply in 2009 or 2010 might be right,” he says. “But that happens with all property development, and the long-term economic factors are clear. There will be 400,000 workers in the City by 2020, and they will need offices to work in.”
Bennett’s message, that the long-term fundamentals mean that speculative officedevelopment is a good bet, have apparently convinced some major developers to start building, not least British Land. It has well over 2m sq ft of office space planned for the next four years. This includes 505,000 sq ft at Ropemaker Place, EC2 (completion due in 2009), 822,000 sq ft at 201 Bishopsgate, E1 (completion due in 2008), and 601,000 sq ft in Leadenhall Street, EC3 (completion due in 2010).
Paul Burgess, British Land’s head of London leasing, says that the company is “very positive” about the growth of the City market in terms of both demand and rents, which goes some way to explaining its bullish attitude to development there.
Forthcoming buildings by other developers include: Difa’s Helter-skelter Bishopsgate Tower, EC2, which gained planning permission at the end of last month; a major site put together by Investream in Leadenhall, Fenchurch and Billiter Streets, EC3; and the 47-storey Heron Tower in Bishopsgate, EC1, on which construction begins next year.
There are clearly going to be plenty of speculative offices built in the City between now and 2010. If the Corporation of London’s projections on workforce growth are right, the prospects are good. But while fortune might favour the brave, it could also punish them.
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1. Leadenhall Street, EC3: British Land is planning to develop a 601,000 sq ft scheme, for completion possibly in 2010 |
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2. 201 Bishopsgate and Broadgate Tower, E1: work is under way at two additional buildings at BL’s Broadgate scheme to deliver a total of 822,000 sq ft |
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3. Aldermanbury Square, EC2: Scottish Widows’ 260,000 sq ft development is under construction |
