I must admit to being a bit dense. The UK Times tells us that a large amount of spec office development in London is likely to be mothballed and some may even be cancelled.
What has me puzzled is why this shift is happening now. The credit contraction started in early June, went into its first acute phase in August, its second in November, its third in March. It seemed pretty obvious as of last fall that we were going into a cyclical fall in employment in trading and broking, perhaps with a secular component on top of it. I don’t know what the pattern in the City is, but in Wall Street, peak to trough job losses are typically 20% (the dot-com bust was actually less severe than the norm).
So why has it taken this long for projects to start to be shelved? Is it simply unsinkable developer optimism, or are there more nefarious factors at work (like certain parties might benefit from keeping the projects alive as long as possible, and thus fan false hopes?)
From the Times:
Plans for more than eight million sq ft of speculative office buildings, including a clutch of skyscrapers, could be shelved as the financial sector retrenches and cuts its demand for space in the City of London.
The impact of the credit crunch on financial institutions, the City’s biggest employers, is blamed for the sudden drop in demand and developers are reigning-in plans for space equivalent to more than a hundred football pitches after four years of increasingly ambitious construction.
British Land confirmed yesterday that it would delay the so-called Cheesegrater, a 225 m (740 ft) high tower on Leadenhall Street, in the hope that its completion would coincide with the peak of the next commercial property cycle. Other developers are expected to delay projects scheduled to start in the next 18 months at least until they have found prelet tenants….
According to City analysts, as much as 8.4 million sq ft of planned speculative office development could now be shelved or at least postponed and 3.5 million sq ft has a question mark over it. The downturn in the financial sector has coincided with more speculative space than ever coming on to the City office market. About 3.26 million sq ft of new unlet space is due to be completed this year, while several hundred thousand square feet of “grey space” – let, but still empty – is expected to be put back on the market.