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Troubled times for offices

With planning approvals down 32 per cent year on year construction starts are falling rapidly. By Lucy Handley

The office sector has contracted almost as rapidly as private housing with construction starts falling sharply since May 2008. Many developers are responding to a faltering demand for office space, weakening rental levels and falling capital values by shelving planned projects. Glenigan recorded a 23 per cent decline in the value of underlying office starts during 2008. Project starts during the final quarter of 2008 were more than 40 per cent down on a year earlier.

This marked weakening has continued during the opening months of 2009, with the value of underlying construction starts during the three months to February 41 per cent down a year ago. The fall in projects in the pre-construction pipeline will put the sector under increasing pressure as existing projects near completion. London accounts for most projects over £100 million and a quarter of the office starts for projects below that figure and it is expected to be the worst affected area.

Knight Frank recorded a 49 per cent rise in available office space in central London during the third quarter of 2008 compared with a year earlier. However, the £300 million Shard of Glass has provided a welcome boost to sector workload in the capital.

The value of underlying construction starts were sharply down in many other parts of the UK during the final three months to February, with falls in excess of 70 per cent in the East of England, the West Midlands and the South West compared to a year earlier, while the value of starts more than halved in the North West and Wales over the same period.

According to Glenigan, the value of underlying planning approvals also fell sharply across the country, down by 32 per cent year-on-year during 2008. The sharp fall in underlying planning approvals is rapidly translating into a lower level of underlying construction starts.

The ongoing problems in the financial and property sectors will have a large impact on prospects for office construction. Now, with many of the City’s financial and business services firms reducing their workforces, growth in the underlying demand for office space is set to fall back even further over the coming months.

The value of underlying office starts has already fallen and Glenigan does not expect the prospects for office starts to improve for at least the next twelve months. The value of underlying construction starts is likely to fall again in 2009, with a decline of 11 per cent forecast for the year.

Project focus: Media City in Salford

Client: Peel Holdings (development manager Ed Burrows 0161 629 8200)
Vital statistics: The project is expected to be complete in 2011 and is worth £400 million
Quantity surveyor: Gleeds (Jeremy Smith 0161 9073880)
Contractor: Bovis Lend Lease (project manager Alan Hook 0161 254 1700)
M&E contractor: NG Bailey 0161 872 0171
Piling contractor: Cementation Foundations Skanska 01923 423100
Details: Scheme comprises the construction of Media City, the new home for the BBC’s departments relocating to the north. The development will include studio and office space on a 14 hectare site, along with a hotel, residential units, retail, leisure and community facilities. This will include associated car parking, infrastructure, access road, sewer system, enabling works and landscaping.
Recent history: The scheme recently announced the addition of piling, concreting, steelwork, infrastructure and cladding sub contractors.

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