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London’s £12bn office pipeline at risk

More than 150 office projects in London collectively worth £12 billion are at risk of being mothballed or stalling due to a lack of funding and pre-lets, according to a new report.

The London Office Development report by consultant EC Harris said the capital’s “unprecedented” pipeline totalling 53 million square feet of gross internal office space by 2016 was in a “precarious position” which could see many failing to reach construction.

Over 50 per cent of the schemes are located in the City of London – and 60 per cent of the total area – including key projects such as the Walkie Talkie and the Cheesegrater.

Midtown accounts for 30 potential developments totalling 7 million sq ft and the West End 25, the report said.

EC Harris head of commercial development Richard Taylor said:  “On paper, the development pipeline for London offices shows massive potential and investment. 

“However, in reality the market is very different, with a large number of these projects unlikely to be delivered as they struggle to find pre-lets and external funding. 

“To stand a chance for success, projects need to differentiate and create a significant market advantage if they are to maximise their chances of completion.”

Long expected drivers such as the boom in lease expires due before 2017 and the perceived low level of refurbishment space could be undermined by the euro crisis and its impact on funding markets and tenant confidence, the report warned.

The report made a series of suggestions to investors and developers to addres the market including:

 

·        End user alignment:  Ensuring that projects are forward thinking and have the end user in mind, offering financial confidence about cash flow implications, flexibility to expand/contract in a volatile market, specifications that reflect the nature of the tenant’s business, high levels of sustainability and absolute certainty of delivery.

·        Funding alignment: It is a buyers’ market and funders are looking for optimum value creation, a long term approach that delivers a sustainable asset and total certainty about planning, costs, and delivery.  JV partnerships are also attractive as the greater the risk share the greater the chance of funding.

·        Commercial advantage:  developers and investors must focus on creating and delivering a competitive asset to create value for their tenants through maximising design efficiencies, achieving an optimum cost solution that takes into account the whole life cycle of the asset and a cash flow optimisation that avoids early upfront costs. 

·        Move fast as the more advanced the development the more certainty it will offer potential investors and tenants who will shortly be spoilt for choice.   

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