London office developers cautious but not downbeat

The FTSE 100 property group British Land reassured the City in mid-July on its long term prospects with news that rather than acquiring new sites in the current climate, it was returning £300 million to shareholders through a buy-back. Yet the group is continuing to see strong demand in the investment market and it has some major City schemes which are set to get underway. British Land has some 870,000 sq ft of space under offer or in advanced talks including 310,000 sq ft of office space at 1 Triton Square, Regent's Place where the group expects to commit to a £200 million development in coming weeks after its plans were approved by the Mayor. Meanwhile, work is set to start this month on BL’s £35 million share of a refurbishment at 1 Finsbury Avenue, part of the Broadgate Campus which will add retail, a new cinema and roof terrace. Meanwhile, at FTSE 250 property group Great Portland Estates the mood is also positive. Chief executive Toby Courtauld recently said: “Despite the ongoing uncertain economic and political environment, we continue to attract tenants for our brand of high quality, well located, sensibly priced space...” The company says it has ‘de-risked’ its committed programme and plans to complete three schemes with 350,000 sq ft of space over the next eight months. But Great Portland is also progressing two ‘near-term, uncommitted schemes’ which could create 309, 300 sq ft of space. One of these, Hanover Square W1, where it has signed a phased access agreement with Crossrail, could involve potential expenditure of £152 million. It has also acquired a further development opportunity of 76,500 sq ft at Cityside House, Whitechapel and overall has a flexible ‘medium term’ development pipeline of 12 schemes which would produce 1.3 million sq ft. Glenigan data highlights the slowdown in commercial activity in the capital but also the continuing scale of the market. According to the latest Glenigan Construction Market Review, underlying office project starts in London were worth £2.13 billion in 2016 (virtually unchanged from the previous year), although the value of detailed planning approvals for offices fell by 16%. In the first five months of 2017, the value of project starts recorded in London fell by 11% on the period last year. For now, contractors in London will be kept busy finishing off existing schemes. According to Deloitte’s Summer 2017 Crane Hire survey, the annual delivery of new space this year is set to be the highest since 2003. It also recorded 28 new construction starts, although this was down from 40 in the previous survey, six months ago. Around 70% of new starts are refurbishment rather than new-build.