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Developers to start building in 12 months

Savvy larger developers could take advantage of commercial development opportunities set to arise later on this year as market evolves

Commercial development in the UK has now all but dried up with the full effects the recession having taken hold of the sector.

The Q1 Drivers Jonas Crane Surveys for London and Manchester show the lowest levels of development since the research began 12 years ago.

But despite Drivers Jonas’ statistics painting a gloomy picture for 2009 and 2010, researchers at the firm believe developers could be about to tentatively start getting projects going again.

A divide will form between smaller and larger developers. There is a fine line between getting the timing and the pricing right to start a new development.

Given the supply levels and the outlook for the economy it could be too early for most smaller to medium firms to start building now.

But Drivers Jonas believes the savvy larger firms are getting ready to take advantage of some good opportunities over the next six to 12 months.

Banks will start looking to take control of failing developers and non-viable sites. Once triggered, the lenders will want a developer alongside to complete a project or will sell the site on at a discounted level.

Larger firms have an investor base they can call upon – indeed the three largest developers in the UK, Land Securities, British Land and Hammerson have all launched rights issues in recent months. Those in the next category down cannot necessarily go to the markets for extra funds.

But Drivers Jonas believes the new opportunities to arise later in the year will not be the same as before. The shape of the financial industry and the economy coming out of the recession is still to be determined.

But fringe office schemes are likely to be converted to residential, student housing or hotels.

And with lower levels of tenant demand expected over the next few years the old mantra of location, location, location will be the order of the day.

Only 23 new developments have started in London over the past year compared with 61 in the previous 12 months.

In Manchester development starts have fallen sharply with nine new starts recorded over the past year compared with 19 the prior year and 32 in 2007.

The public sector, as developer or occupier, is involved in five of these starts, reflecting a key strength of the city centre, a strong public sector and effective partnerships.

Top ten London office developers

DeveloperAmount under construction
Canary Wharf1,145,000
British Land943,000
Land Securities908,000
Heron International479,000
More London450,000
Derwent London349,000
Evans Randall292,000
European Land260,000

Source: Drivers Jonas

Top ten speculative London office developers

DeveloperAmount under construction and available to let
British Land763,000
Heron International479,000
Land Securities423,000
Canary Wharf345,000
Legal & General187,500
Allied London185,000

Source: Drivers Jonas

Office Space Under ConstructionQ1 08Q3 08Q1 09
King’s Cross382,00082,00082,000
West End2,933,0002,454,0002,140,000

Source : DJ Research

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