Market forecast History shows that the market peaks every seven to eight years, so is it at the top? Stacey Meadwell reports
Is the top of the market nigh? Looking back over the past 20 years, the last two peaks have been 7-8 years apart. If this pattern is maintained, this year or the next could see the peak.
The signs are certainly there. On the one hand, the investment property grab is breaking all records. For example, bidding on the highest-profile stock is so fierce that some bidders are resorting to borrowing at loan-to-value ratios of 97.8%, an unprecedented level.
On the other hand, reports of developers calling the top of the market are starting to appear.
Development Securities was the most recent. The developer has had a tough time reporting a 2% drop in pretax profits, and has decided to scale down its 2 Kingdom Street project at Paddington Central, W2.
It would seem that even the tight supply situation in the West End has failed to make its original 360,000 sq ft scheme next to the London mainline station suitably attractive to occupiers. The revised scheme will be almost a third smaller.
There is cautionary talk in the market, particularly in the City, with some saying that, for the time being, those planning big schemes will delay until the next cycle, unless they have already started building.
Those fighting to buy what little stock is coming to the market will be hoping that occupier demand does not succumb to the same caution and that the all-important rental growth continues.
The last cycle enjoyed a soft bounce, and few people lost their shirts compared with the early 1990s. Let us hope those who have gambled on tighter odds do not get their fingers burnt.
overview
Midtown has experienced a shortage of new available space over the past couple of years and, as a result, completed developments are getting snapped up fast.
For example, the entire 80,000 sq ft recently completed at 85 Fleet Street, EC4, is under offer to Charles Russell, while Speechly Bircham is interested in 70,000 sq ft at Land Securities’ 6 New Street Square, EC4.
During 2006, developers began to respond to this shortage, and almost 1.5m sq ft of space is now under construction and due for completion by the end of 2008.
Activity in the southern fringe shows it is possible for these, along with the large floorplates they offer, to tempt West End occupiers.
Notable developments to be completed in the next 18 months, and which are still seeking tenants, include British Land’s Ludgate West, EC4, with 126,500 sq ft available, and 178,000 sq ft at Castlemore Securities’ 40 Holborn Viaduct, EC1.
Several speculative starts are expected in Q2, such as Englander’s 1 Southampton Row, WC1, set to provide more than 100,000 sq ft of office space (see p86).
There has been no flurry of occupiers leaving the West End for Midtown. Developers seem to be responding to demand for good-quality space in the West End, so occupiers may not have to look elsewhere for large floorplates.
Marketing this quarter started with 12 schemes comprising a total of 1.4m sq ft. DTZ has begun marketing three proposed buildings totalling 640,000 sq ft at Paddington Development Corporation’s Merchant Square, W2. Savills has been appointed to market the office element at Candy & Candy’s proposed scheme at the Middlesex hospital site, W1, which will provide 360,000 sq ft of B1 space.
While Midtown may not benefit from tightening supply and rising rents in the West End, new space there is still being let, mainly to Midtown occupiers. Space placed under offer is up this quarter, and record rents are being achieved.
Frances Ketteringham is research analyst for EGi Select London Offices
