Development in London is powering ahead and market experts are firmly convinced the market cycle will not turn downwards until 2018.

Development in London is powering ahead and market experts are firmly convinced the market cycle will not turn downwards until 2018.

This was the consensus view at the Autumn Conference organised by the Commercial Real Estate Finance Council (CREFC) in London this week.

The starting-point in the debate was Deloitte’s report that construction work in central London is at the highest level since the financial crisis and has increased 18% in the last six months. There are now 77 office buildings under construction covering 11.1m ft, the most since 2008, and over a third of them already have anchor tenants.

‘Cranes will be dominating London’s skyline for the foreseeable future as construction activity keeps pace with healthy occupier demand,’ said Steve Johns, head of City leasing at Deloitte Real Estate.

More to come
That demand is unlikely to tail off, CREFC conference delegates believe. A spot survey among speakers and delegates at the conference revealed that 70.4% would invest more in development in the coming year, and that 62% believe the peak of the market will not be reached until 2018. Only 25% think the end of the upward cycle will come next year.

Foreign money keeps feeding the development boom in the British capital, and most of it is cash, said Simon Hodson, Head of Land and Development at JLL: ‘The majority of what we see is cash now, because of competition and the pressure to be agile and move quickly. Due diligence is done at record speed. On the sale of New Scotland Yard earlier this year we exchanged in 13 days, including weekends. It is a very different world from 2007 when it was all debt and equity.’

Asia
Cash buyers come mainly from China, Hong Kong, Malaysia, Singapore and Dubai, Hodson said: ‘In my 25 years in the business I had never needed interpreters at planning meetings, but now it is becoming the norm.’

Andrew Antoniades, Director, CBRE Capital Advisors, said that ‘many of the big schemes are backed by international money, who can outprice anyone else. It has become the funding solution for big developments.’

Although office and residential have traditionally been ‘like oil and water’, said Hodson, they are now beginning to mix in an innovative solution to the housing crisis in London. With house prices reaching record highs and young professionals increasingly being priced out of the market, at least one developer of commercial buildings is including a block of flats to accommodate staff.

The office/resi ‘package’ could be an interesting solution to the recurring problem of affordability for staff, it would be an incentive for employees to stay with the company and would also improve productivity by avoiding the long commute that many London workers now have to endure.

Dame Alison Carnwath, chairman of Land Securities, agreed that a correction is not imminent: ‘If I had a lot of money to invest I would invest it in London, but not now. I would wait for prices to fall, but I know I would have to wait a few years. The market is very healthy now and there is plenty of investor appetite.’