Please follow the below links to access the Focus, London Market Report for Quarter 3 2007. This will give you an indication of Market trends and offers some analysis into the market.
After a strong first half, at the end of the third quarter the Northern Rock crisis hit the Financial Services sector and began to feel the full force of the US sub-prime lending problem.
Nevertheless, according to the Morgan McKinley London Employment Monitor, September saw no dramatic slowdown in middle and back office financial services recruitment levels within London despite the problems with lending. New job numbers rose by nearly 7% over the second quarter and September job numbers were up 12% compared to the same month the previous year. Optimists will see in this that the market is able to ride out this storm with little collateral damage. A more cautious appraisal would identify that the crisis only came to the boil at the end of the quarter and may not yet be seen in the data. Other data is less equivocal, manufacturing confidence turned down sharply in September for example.
As far as the Central London market is concerned, the effects of the credit reappraisal have been seen in the postponement of construction and withdrawal of schemes from the investment market particularly. Nomura House, for example, 300,000 sq. ft. in St Martin's-le-Grand was withdrawn from the market and construction on the Shard of Glass has been delayed again due to funding problems.
Take-up in the third quarter was around 5 million sq. ft. This puts 2007 on course to beat 2004 as one of the best performances in recent years.
In the West End, rental growth slowed significantly from some 10% in quarter 2 to only 2%. Growth also slowed in Midtown moving from 8% quarter on quarter to 2%.
Whether the accompanying gloom and despondency will spill over into occupational markets is difficult to assess. A lot will depend upon how the Financial Services industry reacts. Currently we have seen decisions being delayed and hiring's put on hold while the industry works out the scale of the problem.
If the end result was to be workforce reductions, this would have a significant effect on demand in both the City and the West End, where hedge funds are regarded as being amongst the most vulnerable institutions.
Brave talk around the market insists that this is only a temporary hiatus. The Bank of England biannual financial stability review is less sanguine. It highlights the risk in commercial real estate, where prices are falling "and a sizable development pipeline has raised the potential for future overcapacity".
The report highlights the fact that the exposure of banks to commercial property has reached 9 per cent of outstanding loans, more than the previous peak in 1989-90 and also points out that there has not been a banking crisis in the UK without a simultaneous commercial property crisis.