Watchword is caution: Atisreal’s latest occupier report suggests bankers intend to grow, but not into extra space. Alex Hadwick reports.
London, with its prevalence of financial companies, is at the centre of the credit crisis maelstrom, but a survey of some of the City’s occupiers reveals a small glimmer of light amid the overall gloom.
The Atisreal survey of senior executives from London-based banks reveals a rosier long-term outlook than many commentators would have thought. However, the property industry should remain cautious because it will be some time before there will be anything like the market expansion of 2007.
Andrew Marston, head of research at Atisreal, says: “The surprise was the degree of optimism from the banks compared with what you pick up from casually reading the press.”
The first interviews were started last October, just as the credit crunch was starting to bite. As the situation escalated, further surveys of the same group were conducted, the most recent being in May.
Referring to staff numbers, some 45% expected no change in the next three years, while 37% predicted an increase. Only 4% predicted a cut in staff. But before developers with city schemes get excited by the prospect of snaffling a big bank letting, Marston says the projected increase in staff is so modest – around 2.4% over the next three years – that the existing offices of any bank will probably be big enough to accommodate it.
“Despite being relatively optimistic in their outlook, it isn’t going to flow down to any major space requirements,” he says.
On vacancy rates, the survey makes the point that the building boom in the period before the credit crisis has resulted in 7m sq ft of office space being scheduled for completion in the next two years, so a surplus of around 14% is likely – although this is below the levels reached in the property downturn of 1990, and when vacancy rates peaked in 2004.
Asked about possible relocation, the banks’ overall response was conservative, with the City being chosen far in advance of other areas. In contrast, 60% said they were “very unlikely” to move to Canary Wharf, making it the least likely area for relocation.
Marston was surprised by this response, but believes that, as Canary Wharf is developed further, and as Crossrail comes on stream, this could change. “Clearly, a lot of banks see that the only option is a City address,” he says.
King’s Cross and Euston were included in the questionnaire because of the amount being invested in regenerating these areas. Marston believes, however, that while one or two banks may be tempted to relocate to these fringe areas, they will remain the preserve of media companies and businesses that are more cost-sensitive.
The survey makes it clear that the financial sector remains defiant in the face of economic woes. “Both large and small banks share this optimism, with an equal proportion expecting to increase their staff numbers,” it says.
The property market should take some comfort from this, but keep its own expectations on hold as all sectors tighten their belts.
Vox pop
Gerald Ronson declared recently that his 46-storey Heron Tower is the only one of several proposals that will be built, risking the ire of fellow City developers with similar plans. Pointing to his Bishopgate scheme, he is reported as saying: “Our cranes are up, our contracts are placed, and the deal is financed. The others will see a little bit of demolition, but no real building contracts placed.” Is he right?
“The Heron Tower is the first of the towers to start, but British Land has started work on 122 Leadenhall Street, EC3. This isn’t as crazy as it sounds. The market is uncertain now, but a three-year build time means delivery into a recovering market in 2011. But I have some concerns about the Heron Tower because of its small floorplates. The most successful towers have bigger floors of 20,000 sq ft or more.”
Matthew Elliott, Drivers Jonas
“I sense that Mr Ronson is wrong, but the key issue is what timeframe he is using. Heron, British Land and Arab Investments, at the 940ft Pinnacle, EC3, all have contractors on site, and are planning delivery of the schemes in 2011. They will be delivered, but the build time for one or two might drift out to 2012. Outside the City, The Shard is being built into an SE1 market with no development pipeline.”
Dan Bayley, Atisreal
“Development of The Shard is well under way. We are making excellent progress on demolition and enabling works. We have placed more than a third of the construction works packages and we are actively negotiating the remainder. This is in line with the programme we established at the beginning of this year enabling completion of The Shard by the end of 2011 or Q1 2012.”
Irvine Sellar, Sellar Property Group
“British Land has confirmed that it is proceeding with its iconic Leadenhall building on a speculative basis, with delivery scheduled for mid 2011. This development will substantially enhance the City’s skyline. Indeed, the upper floors are likely to command enhanced rents, attracting tenants who wish to make a positive statement about their businesses across London.”
Tony Joyce, GVA Grimley
