The City of London development market has been the worst affected by the credit crunch said Drivers Jonas this week.
In its Central London Crane Survey published on Tuesday it said that speculative starts on new developments in the city in the first half of the year were down 50% as demand weakened in central London, although 1.3m sq ft of planned development across 11 schemes had begun during this period. Gerald Ronson’s Heron Tower and Minerva’s St Botolph’s accounted for around 900,000 sq ft of this total.
It said: ‘The timing of the credit crunch could not have been much worse for the City office market. Weakening demand comes at the same time as construction activity is at its highest since the early 1990s. This will translate into more choice and lower rents for occupiers who have been at the mercy of the landlords for some time now. Outside the City market developers can be more upbeat as building activity in general remains more constrained.'
Drivers Jonas said this situation meant there was 7m sq ft of unlet office space currently under construction with nearly half of this figure completing during the rest of the year. It said 1.9m sq ft of office space, equivalent to one year’s take-up of grade A space, will complete in the second quarter of this year alone.
It said the reduction in speculative construction starts means there will be an undersupply in 2001 and 2012, creating opportunities now for developers to buy land for development.
Anthony Duggan, partner and head of research at Drivers Jonas, said: ‘It’s a symptom of the dynamics of the property market that means that construction is still rising while the demand dynamics are heading in the opposite direction. However, we have seen a reduction in the number of schemes started and we expect a further reduction in the next survey.
'Also remember, in some of the London submarkets construction still looks a viable prospect. Southwark for example saw two new starts this survey – this doubles the number to just four relatively small schemes under construction in this market, and nothing at all completing this year. It would be unfair to tar the whole of Central London with the City brush.’
Download the full reportCentral London Crane Survey