A new report from CB Richard Ellis shows that the impact of low levels of development in central London may lay the foundation for medium term rental recovery. The projected three-year average completion rate will drop well below 2 million sq ft per annum in 2012-13 which, on past form, would see office rents rising again by the time London hosts the Olympics, the broker said.
A new report from CB Richard Ellis shows that the impact of low levels of development in central London may lay the foundation for medium term rental recovery. The projected three-year average completion rate will drop well below 2 million sq ft per annum in 2012-13 which, on past form, would see office rents rising again by the time London hosts the Olympics, the broker said.
Kevin McCauley, Head of Central London Research, CB Richard Ellis said: 'Historically, the City has seen a very close relationship between completion levels and rental movements. Although conditions remain challenging, tentative signs of improvement are showing with space being mopped-up in the city and supply choked off, so we expect rents to rise again in the medium term. This in turn will signal an increase in construction starts, although the next development boom is still some way off.'
The report, The Development Cycle: A Catalyst for Rental Recovery in London? outlines that in the 12 months to Q2 2009, there was only 1.0m sq ft of construction starts compared with the previous year when there was 6.6m sq ft. Evidence from the last significant downturn in the 1990s points to a long lag between recommencement of significant construction activity and recovery in the occupational market.
Kevin McCauley added: 'In current market conditions and with construction costs remaining high despite recent falls, development is not viable. Only schemes achieving a rent of £55.00 (EUR 63.7) per sq ft would be viable. Even with favourable changes to the occupier market, developers also face extra burdens including S106 contributions and Crossrail charges of £19.80 per sq ft.'
