'Extravagant towers' to be shelved

Agent Drivers Jonas has warned that many of London’s “extravagant tower schemes” will be shelved. The message came in a survey by the firm which found that development activity has dropped in central London during the past quarter. Despite this, the research found that availability of grade A space was very low and rents were going up fast. Rents have gone up 24% in the West End so far this year and 17% in the City.

Matthew Elliott, head of London Agency and partner, Drivers Jonas, said: “We warned the market about the potential for oversupply in the City and it seems the developers have taken heed.” He said developers were now “more realistic about prospects for letting” and “would not rush headlong into the huge schemes they have on the drawing board”. Instead they would be more tactical, phasing schemes and looking for pre-lets to support speculative development. “Some schemes will get pushed out into 2011/12 and some will be pushed into the next cycle. Which ones? Well I think some of the more extravagant towers will be the first to be moved onto the back burner.”

Drivers Jonas’ Q3 2006 Central London Crane Survey found there had been a few speculative starts in the West End. Great Portland Estate and Crown Estate have been particularly busy but their activity, the survey said, “only served to rebalance the completions recorded over the last six months”.

Outside the core City and West End markets, Drivers Jonas found that developers at Canary Wharf and Paddington were awaiting pre-lets before starting further construction. “With demand looking stable rather than hugely expansionary this is probably wise,” the report said. “With the rental differential between core and non-core location widening and supply getting ever tighter those developers that can show certainty of delivery will have the opportunity to compete for pre-lets over the next 18-24 months.”

Drivers Jonas said developers were working hard to get schemes to the market -breaking leases to get tenants out of buildings, securing planning and clearing sites - but the majority are not yet building in the City. The report said: “Does this pause precede the wave of over development that previous DJ Crane Surveys have warned about? We think not. As part of the Crane Survey research process the team monitor every site and potential site. The data shows that there is a possible 12.2 million sq ft that could be brought to the market over the next four years.” This would greatly exceed the amount of space required by the market over this time period, according to Drivers Jonas. The firm said the actual probable delivery would likely be much lower - 5.7 million sq ft over the period.

Anthony Duggan, associate partner, said: “With a minimal volume of new starts recorded in the latest survey the development pipeline for 2007 and 2008 looks very tight. At worst the volume of space under construction looks manageable; at best there will be a real shortage of new space over the next two years.”