Skyscrapers face uncertain future as tenant interest falls away
A BOOM in central London skyscraper construction risks being undermined by a confluence of global economic woes which have turned big-ticket speculative developments into gambles linked to sparse tenant appetite.
"These developers are rolling very big dice," said Alan Carter, a property analyst at Evolution Securities.
The Shard, the Pinnacle, the Walkie Talkie, the Cheesegrater and the tower at 100 Bishopsgate are at varying stages of build, having signed one office deal between them. Heron Tower, which completed in March, has let five of 36 office floors. Together they will add 3.7 million square feet of office space by 2015.
However, concerns over eurozone sovereign debt, sluggish global economic growth, and the US credit rating downgrade have made companies think twice before signing leases for new offices.
Kevin McCauley, head of central London research at property brokerage CB Richard Ellis (CBRE) said, based on properties under offer and excluding pre-let deals, it was unlikely a move of more than 100,000 sq ft would happenin 2011.
"That would be unprecedented," McCauley said.
Several developers have said they aim to take advantage of a shortage of top-end office space. Average rents for the best offices would likely hit 66 pounds per square foot in 2015, from 50 pounds now, property brokerage Savills said.
"You'd have to be a very brave company to commit to several thousand square feet right now. Building these towers now doesn't intuitively feel right," Carter said.
Companies signed for 1.73 million square feet of new offices in the first half of 2011 -- 26pc below the average for the previous ten years, CBRE figures showed.
Before the recent stock market plunge, a broad index of property stocks climbed 16.5pc between the start of 2011 and July 5.
Mr Carter said this rise was on the back of the perceived strength of the central London office market.
Job cuts that financial services companies and banks have announced will further weaken the hand of developers, said Mike Prew, an analyst at Jefferies International.
"Given the reduced demand for space, some developers may take their chips off the table by signing a reasonable deal now rather than hanging out for higher rents," Mr Prew said.