The eurozone sovereign debt crisis and weak UK economy dealt a double blow to the country's commercial property market on Monday, derailing a major London scheme and curbing growth prospects. The first setback came when developer Hammerson said a major scheme in the City financial district faced delay after law firm CMS Cameron McKenna pulled out of talks to pre-let a third of the 600,000 square feet, 485 million pound ($741 million) project.
"If this means Cameron McKenna are definitely out of the market rather than going somewhere else, it doesn't bode well for City tenant demand this year," said Alan Carter, an analyst at Investec. Later in the day, data from researcher Investment Property Databank (IPD), the benchmark index for UK property, showed values weakened in 2011 and the outlook for 2012 was "less than ideal".
The central London commercial property market, which rallied strongly against the rest of the country between summer 2009 and autumn 2011, is now starting to feel the effects of economic uncertainty. London developers are looking to exploit a shortage of top-quality offices in the City district but have struggled to attract tenants amid the global financial turmoil.
Five central London skyscrapers being developed by firms including Land Securities and British Land have only signed one office pre-let deal between them. Wealth manager Schroders recently shelved a deal to move into the Walbrook building near the Bank of England at the 11th hour due to the uncertain economic outlook.
Growth in real estate values across the country slowed to 1.2 percent last year, led by a fall in retail property, a sector hit by the UK's faltering economy and the prospect it will enter recession in 2012. It compares with growth of 6.9 percent in 2010. IPD, which surveyed 3,595 properties worth 33.6 billion pounds ($51.36 billion) at end-December, said on Monday the commercial property sector returned 8.1 percent in 2011, compared with 14.5 percent in 2010.