Act now to secure development success in London offices – EC Harris
As market uncertainty is driving a risk-averse and cautious approach from occupiers, developers of office space in London face a significant challenge in securing tenants and beginning projects, says building consultancy EC Harris.
While there is a considerable pipeline of projects, hopes of a “wave of redevelopment” driven by the expiry of up to 70m sq ft in London office leases before 2017 may be unfounded, the firm says. Developers need to ensure that their pipeline is aligned with future tenants’ needs if they are to beat the market, it adds.
Occupiers’ optimism is waning and in many cases tenants may choose to extend existing leases or choose to take more flexible space, instead of opting for a pre-let on a new building. Some may decide to move to alternative locations within London, the firm adds. There is an opportunity for developers and property owners who can deliver quickly, particularly within the office refurbishment market, it says. “Relocating is disruptive, making the ‘stay and refurbish’ option very attractive,” it points out.
There are currently 150 office development projects in London, which could deliver more than 53m sq ft of new offices in London by 2016, and many of these have been planned to meet the demand driven by the expiry of up to 70m sq ft in office leases before 2017. But most of these new buildings will not have been delivered by 2016, and says that some of them may not get underway at all, EC Harris says. Its research indicates that there is a ‘real’ pipeline of about 37m sq ft of net floor space, representing nearly four years’ of take-up at the long-term Central London average of 10m sq ft per year.
On average, City offices projects are around 420,000 sq ft, which is nearly twice the size of those planned for office space in the West End or Midtown offices, the firm notes. This reflects the large tower schemes such as The Leadenhall Building, 100 Bishopsgate and 20 Fenchurch Street. “The size of these projects present a significant challenge to achieve the minimum pre-let threshold required to trigger funding and construction activity,” it adds. EC Harris thinks that smaller developments, which will potentially be easier to fund and deliver if pre-lets can be achieved.
Only 12% of the pipeline in the City is refurbishment space, the firm notes, which it feels presents property owners with an opportunity. It has also identified three main areas for developers and investors to focus on, in order to improve their chances of successful developments: 1) align projects with the end-user; 2) provide certainty for funders; and 3) act now! “The ability for a scheme, to react to a tenant opportunity / market demand and reach site at the earliest feasible date, provides the developer with a clear market advantage,” EC Harris points out.
