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Commercial starts dry in all but a few regions

Liverpool and Leeds look set to weather the storm, but downturn in financial and business sectors hits London office building

The development tap across the UK’s major cities has well and truly been turned off with office and residential construction activity drying up.

The latest Drivers Jonas Crane Surveys reveal new construction starts are minimal with projects being put on hold.

London and the South-east have the lion’s share of new projec starts at 40 per cent, figures from Glenigan reveal.

But Drivers Jonas’ report shows construction in London has dived 20 per cent compared to six months ago. New starts in the capital have fallen from 46 this time last year to just 17.

Glenigan economics director Allan Wilen said: “Unfortunately, construction activity in the capital is tied to the fortunes of its main economic sectors, finance and business services.

“London is set to experience a major contraction in project starts next year, as these sectors retrench and the flow of commercial office projects stalls.”

He added: “Regions in the North, with a greater exposure to the private housing sector, have so far been the most severely affected by the downturn.”

There have been just six new starts in Edinburgh over the past year totalling 685,000 sq ft, giving it the least new development of all the major cities.

But while residential and office development has dropped away in Leeds, retail schemes are healthy. This year’s major new start, the 1 million sq ft Leeds Trinity, is scheduled to be joined by the 1.08 million sq ft Eastgate Quarter in 2012.

Drivers Jonas partner John Walley said: “The market is getting worse. Values are falling and there is more uncertainty.

“While there may still be cranes on city skylines, for the most part they are old projects. New starts are very much becoming the exception.”

Of all the UK’s major cities, Liverpool was singled out by Drivers Jonas as being well placed to survive the downturn.

Analysts said investment in the run up to this year’s Capital of Culture celebrations have been a major catalyst for a revival that can continue through toughening conditions.

The report highlighted that out of 5.5 million sq ft of commercial floor space that completed over the past year, 85 per cent is already occupied or pre-let, demonstrating long-term confidence in the city.

Beyond its tenure as European Capital of Culture, the city can still look forward to the completion of major schemes such as the Museum of Liverpool, the £100 million re-development of St Johns Shopping Centre and refurbishment of the former Lewis Department Store.

Drivers Jonas partner John Adams said: “While the economic downturn has slowed residential development, major schemes remain in the pipeline. All the signs indicate that Liverpool’s revival needn’t finish when the Capital of Culture moves on.”

Across all UK cities Drivers Jonas forecasts suggest rents will fall because of a developing demand and supply imbalance.

Researchers say there is an increasing shift in the balance of power from the landlord to the tenant.

Landlords are offering better deals such as 12 to 18 months capital incentives, rent free, compared to six months in 2006 and 2007.