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Olympic projects affecting City development

Growing construction cost of the 2012 London Olympic Games is damaging City office development deals.

The growing number of Olympics-related projects, coupled with rising raw materials prices and skilled labour shortages, have given the construction industry an increased bargaining edge over developers when pricing new schemes in the capital, according to a report by Cushman & Wakefield. Building cost estimates have risen by 25 per cent over the past year.

The increase in costs, combined with the recent credit crunch from banks, has badly affected the City office investment market. There is little prospect of improvement until the new year, according to the report.

A total of £5.4 billion was spent on buying City office space in the third-quarter of this year – representing an 8 per cent rise on investment in the previous quarter – but all but about £350 million of deals took place before the start of August, Cushman’s figures reveal.

Since August, banks have tightened their lending criteria and are demanding far more upfront cash from potential investors.