Office Space In London May Never Be Built

Office building work in London to the value of £21 billion is planned but around 50% may never be constructed due to problems with finance according to a report entitled “London Office Development: The Challenge Ahead”. The report was written by Richard Taylor who is the head of commercial development at EC Harris, quantity surveyors.

85% New Build

Of the 150 projects that are planned in London, which if constructed would provide a gross office floor area of 53 million sq. ft. by the year 2016, only 15% is in the refurbishment category with the remaining 85% classified as new build but external and pre-let tenants are proving difficult to find for the projects.

Investors Focused on City of London

The report states that investors and developers have their attention focused on the City of London and over 60% of the proposed total office floor space, which comprises over 50% of the proposed projects, is in this area. The City projects average approximately 420,000 sq.ft. gross, making them almost double the size of projects which are proposed for Midtown and the West End, reflecting tower schemes on a huge scale which are already in construction, like the 224 metre high Leadenhall Building and the 36 storey building at 20 Fenchurch Street, or planned. r

Smaller Developments at Midtown

There are over 30 smaller planned developments at Midtown but they total 7 million sq.ft. gross internally. Compared to the Midtown the plans for the West End are quite constrained with the average size of each development being around 240,000 sq. ft. of which there are 25 planned during the next 5 years

Maximising the Chance of Completion

Richard Taylor, after writing the report stated: “On paper, the development pipeline for London offices shows massive potential and investment. However, in reality the market is very different, with a large number of these projects unlikely to be delivered as they struggle to find pre-lets and external funding. To stand a chance for success, projects need to differentiate and create a significant market advantage if they are to maximise their chances of completion.”

Tenants Diminishing Optimism

Reportedly between 25 and 70 million sq. ft. of office space leases are likely to expire prior to 2017 and the growth of the planned developments is driven directly by this factor; but the report reveals that tenants are losing optimism, mentioning the euro crisis and funding markets growing tighter as being major reasons why these tenants may stay where they are, extending their current leases instead of contracting pre built schemes for future office space.

Forming Joint Ventures

The report recommends that investors should variously “move fast”, “ensure that projects are forwarding thinking” and “create value”, whilst suggesting that the formation of joint ventures will spread the risk.

Written by Tina Reeves, Construction Industry writer