The current economic downturn may have strong repercussions on the London real estate market in the medium term, according to King Sturge, an international property consultant. With the current construction projects being stalled or cancelled altogether, it is quite likely that no new office space will be available in 2012, leading to sky-high rentals in London, says the consultant.
With the current recessionary trend, many developers have put projects on hold. Prominent among these are the “Cheesegrater” by British Land and the “Walkie Talkie” from Land Securities. Rising costs of construction, uncertainty of getting tenants and new environmental regulations have added to the credit crunch already prevalent, forcing builders to step back and revaluate projects. In addition, a surplus of office space, almost amounting to 20 Gherkin Towers, is currently available in London (click for offices to let London info), primarily due to the reduction of over 58,000 employees by banks and insurance companies. This has pushed rentals down to abysmal levels.
The city of London averages about 2.2 million square feet of new office space every year. This year, the only major development is the Heron Tower. Spanish property developer Metrovacesa is said to have paid a hefty fine for not completing the purchase of a property in London.
All this means that in 2012, when the demand is high, property prices will skyrocket due to the lack of new office space in the city. King Sturge predicts that rentals in 2012 may go as high as ₤47.5 per square foot of commercial space, due to the reversal of the demand supply equation of the current year.
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