Developers are holding back on commercial schemes until the effects of the economic downturn have ended
In many ways the best snapshot of whether the UK economy is doing well or not is to swerve past the welter of statistics that get churned out and take a peek at the skyline.
Nowhere is this better tested in the UK’s biggest cities than by counting up the number of tower cranes. Leeds, for example, has a fair few; Manchester as well. Inevitably London has the most and many a tourist’s snapshot of the capital shows a cluster of tower cranes.
In recent years most have been in evidence in the City of London, where office blocks have been springing out of the ground in huge numbers.
But all this seems to be coming to an end, according to a report released by property consultant Drivers Jonas.
The City office market has been the hardest due to financial uncertainty, the consultant says in its latest six monthly report - appropriately entitled ‘Crane Survey’ - and its head of research is expecting things to get worse when it next updates.
Speaking about City offices, Andrew Duggan says: “We generally expect the pipeline to be cut off fairly sharply.”
Hard to get finance
The report says that the timing of the credit crunch has come at the same time that construction activity is at its highest since the early 1990s. Landlords will be the big losers, of course, because unlet office space translates into more choice and lower rents for occupiers.
What is clear is that anecdotal evidence - jobs delayed, jobs being scaled back or jobs finding it hard to get finance - is now being supported by hard facts.
The number of new starts across London in the past six months has nearly halved to just 26 and Drivers Jonas predicts this trend will continue with developments dropping off until 2011/12. As quickly as speculative construction rises, the pace of that increase has slowed dramatically.
What contractors are being told to do is wait until the over-supply is absorbed and the market becomes under-supplied so developers sanction the building of more blocks.
The contractors who carry out this sort of work are already seeing that as well as some of the key subcontractors in the market - notably Severfield-Rowen, whose share price tanked earlier this year after it told the City it had seen a “softening” in some of its key markets.
Ironically, Mr Duggan reckons that the slowdown might be good for the industry, as it can get on with other jobs.
Those most exposed by the fall-off are the fit-out contractors. Last month Morgan Sindall said fit-out had held up well in the first quarter but admitted “the longer term outlook for the market remains uncertain”.
And ISG - until recently best known for fitting-out London offices rather than building Olympic velodromes - has diversified because chief executive David Lawther looked ahead and became worried about the state of the office market in the capital.
As Drivers Jonas’s Mr Duggan notes: “There’s a lot of offices to fit out, but no-one is taking them.”
TOP OFFICE DEVELOPERS*
Morley Fund Management
RREEF (Deutsche Bank)
* by amount of space under construction
KEY SPECULATIVE SCHEMES
Ropemaker Place, EC2 (Mace)
Watermark Place, EC4 (Sir Robert McAlpine)
Heron Tower, EC2 (Skanska)
St Botolphs, EC3 (Skanska)
The Walbrook, EC4 (Skanska)
Central Saint Giles, WC2 (Bovis Lend Lease)
200 Aldersgate, EC1 (Bovis Lend Lease)
Drapers Gardens, EC2 (Sir Robert McAlpine)
Regents Place, Building 2, NW1 (Bovis Lend Lease)
Carmine, Merchant Square, Paddington Basin, W2 (Laing O’Rourke)
To download PDFs of the office space under construction and in the development pipeline in London, click on the resources box on the right hand side of the page.