London’s New Offices May Not Lure Tenants on World Economy, EC Harris Says
Leases for up to 70 million square feet of space are due to expire before 2017, the London-based consulting firm said in the report today. However, the global economy’s weakness may prompt tenants to extend their current lease or move into an existing building rather than paying more for new space, according to the report.
The lack of demand for new buildings, combined with tighter credit and a wave of job cuts by financial-services companies, will prevent some developments from going ahead, EC Harris said. More than 150 projects are planned, according to the firm. Developers restarted office-tower construction in 2010, betting tenants would choose new buildings when their leases ended.
Developers are “looking to put more people into their offices as a way of giving themselves some form of market advantage,” said Richard Taylor, head of commercial development at EC Harris. “It allows tenants to take less space,”
More than 50 percent of the office pipeline through 2016 is in the City of London financial district. Rents there fell 0.1 percent in January from December as buyers showed “anxiety” about the prospects for rental growth in the short term, Investment Property Databank Ltd. said in a Feb. 14 statement. U.K. financial services companies eliminated 58,000 jobs last year, according to data compiled by Bloomberg.
West End Plans
Planning constraints mean London’s West End has 9 million square feet of new and refurbished space due to come onto the market. The report said that some of that is likely to be developed as homes because it’s a safer investment.
There will be opportunities for investors to modernize office buildings because “relocating is disruptive, making the ’stay and refurbish’ option very attractive,” the report said. About 15 percent of the pipeline of office space is refurbishment space with “speed to market” crucial.
“It’s harder to find refurbishment projects in certain locations and the existing buildings aren’t necessarily aligned to present day requirements,” Taylor said by telephone. “That’s where the imagination comes through from developers.”
To contact the reporters on this story: Neil Callanan in London at email@example.com.