Things may get worse before they get better in central London, said property advisory company BH2 today, with the Docklands market facing ‘the worst of the looming and unavoidable occupational shocks’.

In its report – Nothing But The Truth – it said occupational activity on the whole in London was positive. It said the city occupational market was encouraging in the third quarter given the current uncertainties surrounding the financial markets and take up this year would be ‘significantly above the long-term average’. However, it said the Docklands market would suffer given its exposure to investment banking but the impact ‘would be cushioned by the historically low vacancy rate’.

On the investment side it said activity during the third quarter in London ‘bore little resemblance to the buoyant market conditions experienced during the first two quarters of 2007’. It reported £2bn of investment activity in the City during the third quarter compared to £3bn recorded in the second quarter. BH2 also said that only five deals took place during September compared with more than 20 deals in the corresponding period last year.

BH2 said: ‘There can be no doubt that the lack of appetite from domestic institutions couples with paralysis in the debt markets has detrimentally affected activity.’

On a more positive note it said London’s markets, which were less exposed than other markets such as Manhattan, would benefit from a ‘powerful wall of liquidity’ arriving from India, China, Russia and the Gulf’ which would drive investment and occupational demand. It added that increasing building costs would restrain development activity and ‘act to support capital values through the avenue of increasing replacement values’.

It concluded: ‘In short, whilst coming months could prove disagreeable to London’s wider office market we feel that prospects for disciplined supply alongside improving demand offer an encouraging backdrop if not over coming quarters then certainly for the years ahead.’