Two London office developments worth 600 million in total are set to become the first high-profile casualties of the global credit crunch
The brakes are understood to have been put on both a proposed 250 million scheme to build a headquarters for JP Morgan and a 350 million Trinity office scheme for developer Beetham.
The JP Morgan project has been on the blocks since last year when Hammerson was instructed by the US bank, which last month bought stricken New York rival Bear Stearns, to handle the redevelopment of St Alphage House, near London Wall in the City.
It was originally planned as a construction management deal but in a move that mirrors the switch at the Shard - which was originally to be built under CM until the banks insisted on fixing the cost - that has now been shelved in favour of a more traditional method where costs for the client are capped.
Mace had been looking at the deal but has now abandoned its interest, leaving Sir Robert McAlpine and Bovis Lend Lease to stick with it. Laing O’Rourke ran the rule over the job but ended its interest there.
One source said he had not heard anything about the deal for a couple of months, fuelling fears that it would be mothballed.
Bear Stearns is halfway through building a 200,000 sq ft development at Canary Wharf and the source added: “They are a damn site nearer moving into that than St Alphage House.”
And another admitted: “It has all gone quiet for us recently. There is a suggestion that things may move forward in the summer but JP Morgan has just bought Bear Stearns, which has a half-built new office in the Docklands so why would they need a further one million sq ft of offices at a time when the markets have taken a tumble?”
Hammerson was unavailable for comment.
The proposed 131 m-high scheme, which has been designed by KPF Architects and runs across 93,000 sq m, will include building four trading floors, each around the size of a football pitch.
Across the City in Aldgate, a three-tower scheme being planned by Beetham has hit the buffers. The Trinity project was given planning permission in January but is understood to now be on hold. One source said: “There is nothing happening for the time being. Everyone is waiting for Beetham to make its next move.” The developer was unavailable for comment.
Sir Robert McAlpine is set to take the scheme having been taken on to give preconstruction advice in late 2006.
Major City office developments
Last week the CBI warned that up to 11,000 jobs could go in the City of London in the next three months. These are the major sites that are planned but either construction or main construction has not yet started:
20 Fenchurch Street – Mace tipped for 205 million ‘Walkie Talkie’ deal but developer Land Securities will not make decision on whether to go ahead until the end of the year
The Pinnacle – Mace is project manager with Multiplex on a preconstruction agreement for the 500 million main tower
100 Bishopsgate – Great Portland Estates tower not due to start until 2011
30 Old Bailey – Mace providing construction advice on Land Securities development. Substructure works not due to commence until 2010
Walbrook Square – Bovis Lend Lease lined up for 300 million construction contract but legal issues regarding sale of site by Legal & General may delay job
Analysis: Bear Stearns hit could be felt for years
By Richard Kelly
Markets hate uncertainty. Just when people thought it was safe to think about being optimistic again, Bear Stearns came along.
To lose one bank could be regarded as a misfortune but a second bank failing suggested carelessness and raised fears that there may be more bad news to come, fuelling rumours of recession and keeping banks cautious.
So occupiers remain worried about the risk of recession and those banks which are still active lenders are unlikely to fund developments without good quality prelets.
This threatens to create a spiral with occupiers postponing plans to relocate and banks unwilling to fund development without those prelets.
In the current climate there is little appetite for funding speculative development.
When will it end, no one can say for sure. But now should be the time when developments for 2009-2011 are being planned and financed, so the impact of the current conditions could be felt for many years to come.
Richard Kelly is head of construction at accountant and business adviser BDO Stoy Hayward