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News Release

London

When Should Office Developers “Push the Button” Again?

New research on Economic Rents from Jones Lang LaSalle


London, 26th May 2009 – New research issued by Jones Lang LaSalle today details the drivers behind the timing of future new office developments and how developers can benefit from the movement of key factors, primarily build costs, rental levels and yields. ‘Pushing the Button: Economic Rents in UK Office Development’ examines why current conditions prevent profitable office development and how and when this will change.

Jones Lang LaSalle argues for commencement from the end of 2011, which is when we forecast that building costs will be at their lowest. This would still be a strategy for the brave with supply expected to be significantly above average, although reducing, and an absence of rental growth. Delivery in 2013, however, will access a market of limited competing supply, rising rents and falling yields.

Damian Corbett, Head of West End Investment at Jones Lang LaSalle, commented: “As things stand very few schemes will commence in the short to medium term. Despite London supply expected to peak at levels not seen since the early 1990s, supply will erode quickly from 2011 as a result of limited new additions to stock. Rents – and build costs – will begin to rise again from 2012 and there is a risk that developers who wait for low supply and proven rental growth will miss the boat in terms of building for maximum profit. Using Jones Lang LaSalle forecasts we have pinpointed when developers should get back into the game, in order to minimise their risk and maximise profits.”

Bill Page, Head of UK Offices Research, added: “Historically, the most successful group of developers were those who commenced in 1995 - after the last recession. Such commencements occurred while supply was still above average but on delivery the environment was very different. The current recession offers developers a chance to access similar dynamics – delivery into an environment of compressing yields, rising rents and limited competing supply but, in addition, with the benefit of locking into cyclically low build costs.”

 

Notes to Editors
The report ‘Pushing the Button: Economic Rents in UK Office Development’ is available on request.