New developments of office space in London City are going unoccupied. Costs and lack of demand are just two of the reasons why offices are remaining empty according to new reports.
Many of the office developments in the capital are remaining unoccupied due to a lack of demand and the high expense of office space in London City due to the weak financial climate.
The current economic downturn has also seen some companies extend existing leases rather than seeking out new ones upon expiration.
Some of the most well-known skyscraper projects have remained empty following their completion including Minerva’s Walbrook in London’s financial district. The Walbrook is just one office space in London City that remains unoccupied two years after its completion. In fact it is estimated that in the vicinity, 66% of the office space completed this year is yet to be leased.
It was reported by Colliers International that the amount of office space in London City built this year was 43% lower than the 10 year average but still most developers are yet to find tenants for their projects. In the first half of the year Savills Plc also stated that the rate of new rentals had dropped by 52%.
Of course, leasing office space in London City is expensive, which is why some companies have chosen to look elsewhere. The site of the 2012 Olympics in the east of London is one of the most enquired about options with some developments already being planned on the cheaper site.
Digby Flower an executive director at CBRE Group said: “The deterioration in the economic outlook since the summer has forced developers to reconsider the timing and feasibility of schemes.
“The development pipeline will be lower than anticipated six months ago.”
According to Jones Lang LaSalle even some legal firms are trying to remove office staff from the capital and use space more efficiently. The cost of leasing office space in London City is currently so high that companies are being left with no choice but to look elsewhere for new space.
Allen & Overy LLP, who have moved moved their H.R, I.T and finance jobs to Belfast, are said to save £11m in the first five years and £8m a year thereafter, with some of these savings being in real estate.
In 2010, City rents rose by 22% according to Jones Lang LaSalle, with the total space leased increasing by 37% thus prompting landlords and brokers to predict strong growth for 2011. This encouraged developers to undertake projects without first securing tenants.
Director of investment bank, Evolution Securities Lts, Mike Bessell said that some of the big corporate occupiers will not take office space in London City’s current developments as they will be leased on a floor-by-floor basis which is not suitable.
As London’s banks are hurt by slowdowns in Britain and Europe, the forecasts for projects are now being scaled back, with the prospect of lease extensions being favoured.
Bessell added: “If global macro-uncertainty concerns continue, they might take a five-year extension while they wait and see.
“These days, a landlord would bite their arm off for that.”