A boom in central London skyscraper construction risks being undermined by a confluence of global economic woes that has turned big-ticket speculative developments into gambles linked to sparse tenant appetite. "These developers are rolling very big dice," said Alan Carter, a property analyst at Evolution Securities.
The Shard, the Pinnacle, the Walkie Talkie, the Cheesegrater and the tower at 100 Bishopsgate are at varying stages of build, having signed one office deal between them. Heron Tower, which completed in March, has let five of 36 office floors. Together they will add 3.7 million square feet of office space by 2015.
However, concerns over eurozone sovereign debt, sluggish global economic growth, and the US credit rating downgrade have made companies think twice before signing leases for new offices, four property industry insiders told Reuters. "The phone has stopped ringing in the City market but please don't put my name to that," one broker said of central London's financial district last week.
Kevin McCauley, head of central London research at property brokerage CB Richard Ellis said, based on properties under offer and excluding prelet deals, it was unlikely a move of more than 100,000 sq ft would happen in the City in 2011. "That would be unprecedented," McCauley said. Several developers have said they aim to take advantage of a shortage of top-end office space in the City. Average rents for the best City offices would likely hit 66 pounds sq ft in 2015, from 50 pounds now, property brokerage Savills said. "You'd have to be a very brave company to commit to several thousand square feet right now. Building these towers now doesn't intuitively feel right," Carter said.
In the City, companies signed for 1.73 million square feet of new offices in the first half of 2011, 26 percent below the average for the previous ten years, CBRE figures showed. Before the recent stock market plunge, a broad index of property stocks climbed 16.5 percent between the start of 2011 and July 5. Carter said this rise was on the back of the perceived strength of the central London office market.
Land Securities and British Land, the developers behind the Walkie Talkie and Cheesegrater, rose 31.3 percent and 19.9 percent respectively over the same period, against a 2.1 percent rise in the FTSE 100 index. "The (share price) performance has been based on developers promising investors jam tomorrow but you have to think there will come a time when they look around and wonder if it's true," Carter said.
Job cuts that financial services companies and banks have announced will further weaken the hand of developers, said Mike Prew, an analyst at Jefferies International. "Given the reduced demand for space, some developers may take their chips off the table by signing a reasonable deal now rather than hanging out for higher rents," Prew said.
Comments
Comments are closed.