"London is a hot market," shrugged Allsop auctioneer Gary Murphy at Investors Chronicle’s property seminar last week in response to a frustrated buy-to-let investor who had been repeatedly outbid. And it’s not just the housing market. The big real-estate investment trusts have been making hay in a very sunny environment for central London office construction. The development pipeline of Great Portland Estates (GPOR) - whose shares were cited by economist Tim Harford as an obvious vehicle for 'shorting' the capital in a recent FT leader - was marked up 15.8 per cent over just six months to 30 September.
So is the capital overheating? Those with long memories remember the vicious boom-bust property cycle of the early 1990s, when interest rates hikes pushed the economy into recession just as developers, delayed by steel-worker strikes, were putting the finishing touches to a new generation of offices. Nobody expects strikes this time round, but bubble-spotters can point to an ominous spike in completions. Thanks to the two new towers now looming over the City’s insurance district, 6.7m square feet of office space will come onto the market next year, forecasts brokerage CBRE - the most since 2003.
But most of these projects, which were signed off by the big listed developers as the market bounced in 2010, already have tenants lined up. Strip out pre-lets and office completion forecasts look unexceptional, particularly in the core West End market. That - combined with clear signs of a recovery in tenant confidence - explains why developers are still bullish.
Land Securities (LAND) has pressed ahead with major schemes at Victoria and Ludgate Hill. "If we weren’t very confident we wouldn’t be working towards 2016 delivery," says chief executive Rob Noel. "It’s very hard to look beyond that date. If everyone starts building now it would be different, but in property you can’t just turn the tap on - it takes two to three years at least to build an office." Toby Courtauld, chief executive of Great Portland, meanwhile says "you should avoid late-cycle development" but the market "doesn’t feel late-cycle yet". He expects to start a major development at Rathbone Place, north of Oxford St, next summer.
