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Old January 20th, 2008, 06:01 PM   #1
hkskyline
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London's Skyscraper Boom - An Abrupt Halt?

Commercial property crash: High anxiety
London towers in doubt as office market dives
Freezing of Scottish Equitable fund triggers share panic
Key backer of 'shard of glass' skyscraper pulls out

19 January 2008
The Guardian

Britain's commercial property market suffered its darkest day for more than a decade yesterday amid panic selling, profit warnings and collapsing sales.

Hours after the Guardian revealed that a big Scottish insurer was freezing its pounds 2bn property fund for up to a year, New Star Asset Management, the group that has been the most popular with small investors in recent years, issued a shock profits warning. It revealed that customers had withdrawn around pounds 500m in assets, much of it from its flagship property fund, which had fallen in value from pounds 2.2bn to pounds 1.5bn.

Other property managers rushed out statements insisting their investments remained safe, but Standard Life warned that a further "aggressive correction" in prices was possible.

Adding to the gloom was the National Grid, which said it was abandoning plans to sell its property portfolio, believed to be valued at around pounds 500m, after failing to find suitable offers.

Meanwhile, one of the key backers for the proposed Shard of Glass skyscraper in London revealed it was pulling out of the deal, although Middle Eastern backers are promising new finance.

The speed of the downturn in the commercial property market in the last few months has been breathtaking.

Only a year ago mayor Ken Livingstone said the Shard would be to London what the Empire State Building is to New York. But now many property experts question whether the tower, and dozens of other skyscraper projects on the drawing board, will join the skyline of Britain's cities.

Yesterday economists predicted the property downturn could last throughout 2008, with pessimists forecasting a full-scale collapse on a scale not seen since the early 1990s. Most blame the credit crunch for raising borrowing costs, plus gung-ho investors drunk on the returns made from a raging bull market over the past three years which had propelled values in London to double those in New York.

Simon Rubinsohn, chief economist for the Royal Institution of Chartered Surveyors, said: "The value of commercial buildings dropped by more than 4% in December alone. Transaction activity in the sector has been hit hard as the credit tap has been turned off . . . we expect prices in the sector to continue to retreat over the course of 2008."

Investment bank Morgan Stanley warned that the market could enjoy a near-term rally but then dive again, falling by as much as 50%. That would result in the insolvency of many investors and leave banks with worsening bad debts.

Hundreds of thousands of small investors have ploughed at least pounds 20bn into commercial property funds over the past five years, much of it during 2006 and early 2007. But the latecomers are now sitting on losses typically around 20% but in some cases as high as 40%-50%.

Yesterday New Star said its property fund remains cash-rich and is meeting any requests for withdrawals. But many other funds are in a much less comfortable position.

Scottish Widows and Axa are bearing the brunt of rumours that their property funds may also have to lock-in investors in the same way as Friends Provident and Scottish Equitable.

Scottish Widows said it is continuing to examine its options, but no decision has been taken to halt withdrawals.

Axa, the French insurance giant that bought Sun Life and Equity & Law in the UK, said it too is closely monitoring the situation and considering what, if any, action may be appropriate. A spokesman for Standard Life said that "property funds can meet redemption requests", though he added that the situation could deteriorate if the correction takes longer.

Prudential and Aviva said their property funds also had enough cash to pay current levels of redemptions. The speed of the correction has surprised many in the industry and led to some panic selling, said property agents Jones Lang Lasalle.

Land Securities, the UK's largest commercial property firm, said it predicted a hard landing for the industry and has sharply reduced the office space it expects to let over the next two years.

Fearful of the impact a "fire sale" can have on prices, funds in difficulty have opted to ban withdrawals.

The most closely watched fund in Britain is Norwich Union's property unit trust, with around pounds 4bn in assets. This week it said that its cash buffer has risen to around 6.4% thanks to sales of office blocks in London and Manchester.

A glut of new offices will hit the London market in the next four years, totalling around 8m sq feet, or 50% more than the amount of space developed in the last four years.

AtisReal, a property consultant, predicts that City rents will fall by 5% this year and next, and only stage a lame recovery in the years after that.

But there are likely to be some winners from the commercial property shakeout. Already consortia of "vulture funds" are being put together in the City, some financed with Middle Eastern and Chinese money, to buy at knock-down prices from distressed sellers.
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Old January 20th, 2008, 06:56 PM   #2
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What is the vacancy rate now in London for good office space?
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Old January 21st, 2008, 04:22 PM   #3
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Quote:
Originally Posted by Taller, Better View Post
What is the vacancy rate now in London for good office space?
Very low : http://www.cushwake.com/cwglobal/jsp...N&LocId=GLOBAL
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Old January 21st, 2008, 04:25 PM   #4
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One of so many apocalyptic articles published recently.

There's panic in the air but fundamentals are still good (take up, vacancy rates, rents)
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Old January 21st, 2008, 09:55 PM   #5
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In a booming city, some occupancy and pre-leasing is just companies renting space they think they'll need later, not space they need now. A down market can be compounded by many of these companies returning excess space to the leasing market.

Long term, I wouldn't worry too much about London. It's confirmed its status as one of the world's top three cities, and it continues to be the second home (or first home) of much of the world's elite.
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Old January 22nd, 2008, 04:30 PM   #6
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London Shard skyscraper wins financial backing

LONDON, Jan 22 (Reuters) - The "Shard of Glass" development, one of London's most high-profile skyscraper projects, came a step closer to being built on Tuesday after a Qatari consortium agreed to finance the 2 billion pound ($3.88 billion) scheme.

The consortium comprises equal shareholdings of the Qatari Islamic Investment bank QInvest, Sellar Property Group, Qatar National Bank, Qatari Islamic Bank and Barwa, a statement said, after the acquisition of stakes held by CLS Holdings and the family trust of entrepreneur Simon Halabi.

QInvest Chief Executive Professor Abdul Latif Almeer said the development, near London Bridge just south of the City financial district, would " undoubtedly be Europe's most recognisable commercial property landmark."

"Our investment in this 2 billion pounds development not only reflects our admiration for what has already been achieved in getting the scheme to its present level, but also underpins our confidence in the London commercial real estate market," he said.

The news brings to an end months of speculation concerning the future of the development, which has been dogged by financing problems since the onset of the credit crisis last year.

With investment now secured, developer Sellar Property Group said it was confident it could fast-track completion of the scheme by the end of 2011.

But there are concerns that the 2 million square foot project could tip a fragile balance between office space supply and demand in London's financial district, as occupier take-up falters and banking sector job cuts mount.

Two major pre-lets have already been signed for the London Bridge Tower component of the scheme, with Shangri-La Hotels taking almost 200,000 square feet of space and Transport for London (TfL) contracted to occupy 190,000 square feet of office accommodation.

It is estimated that development of London Bridge Quarter will cost up to 1.4 billion pounds, with the majority of the initial construction finance provided by the Qatari consortium.

At 310 metres, London Bridge Tower will be Europe's tallest mixed-use skyscraper, the developer said.
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Old January 22nd, 2008, 04:46 PM   #7
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What a rubbish article. Cities like New York, London, Paris etc on high-profile projects will always counter-act any downturn. Cities like these will always grow, people will always try and relocate to them - you might get the occasional financial dip where people will question investment but once you've consolidated a place at the top of the tree, you're not going to see a dramatic downturn like that article suggests. Infact. London is only building tall now because there is very little space in the centre to construct groundscrapers and if there is a large plot. Deomoiltion can be just as costly.
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Old January 26th, 2008, 07:32 PM   #8
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oh bollocks
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Old January 26th, 2008, 08:41 PM   #9
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wow, this is interesting.
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Old January 27th, 2008, 04:08 PM   #10
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Nonsense.
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