A Renters' Market in London

On a construction site in the heart of the City, London's financial quarter, a tower stands half-demolished, its bruised concrete and severed beams exposed. Here — between the Lloyd's building, a monument to the City's 1980s boom, and the Gherkin, Norman Foster's popular pickle-shaped tower at 30 St Mary Axe — work on the foundations for the 738 ft (225-m) Leadenhall Building is underway. Intended for completion in 2011, the skyscraper — designed by celebrated British architect Richard Rogers — would have stood as the tallest in the City.
That was the plan, anyway. But on Aug. 14, British Land, the U.K.'s second-biggest property developer, announced that construction of the building — already dubbed "The Cheesegrater", in honor of Rogers's wedge-shaped design — would likely be delayed, pushing completion back a year to 2012. The firm's motive? With the financial services sector trimming costs amid turmoil in the credit markets, both the demand and rental values for City offices are dwindling. British Land — itself hit by a $1.1 billion loss for the three months to July as the value of its portfolio tumbled — reckons it'll score lower construction costs and higher rents for the 47-story building by sitting out the downturn.
It's got a point. Net job losses among banking and insurance businesses in the City will hit 10,000 before 2011, according to Experian, the credit services company. Hardly a good time to be marketing empty office space; commercial real estate firm Atisreal says banking and finance firms are currently taking just 110,000 sq ft (10,200 sq m) of City space in a three-month quarter. Throughout 2005 and 2006, the take-up rate averaged more than four times the current level. The flatter demand will drive down rents in the City by 16% this year, Atisreal estimates, and a further 5.7% in 2009.
Worse still: the slump comes just as a rash of new office developments hit the market. With more than 7 million sq ft (650,000 sq m) of speculative office space coming online in the City this year and next, according to Atisreal, British Land may not be the only developer to take a time out. Rival Land Securities, Britain's largest property firm, will decide next March whether to go ahead with construction of a planned 509 ft (155-m) tower around the corner from Leadenhall Building; it too was originally planned for completion in 2011. "It seems an increasingly large percentage of that pipeline [of new developments] won't be built, or at least will be delayed," says Kelvin Davidson, a property economist at Capital Economics in London. "It's classic economics: weak demand and rising supply. There's only one way rents can go."