Spec schemes reviewed as uncertainty reigns

London has 8.2m sq ft of unlet space completing in the next four years

EU referendum: The UK’s vote to leave the EU has called into question the future of millions of square feet of development as the industry pauses in its decision-making amid economic uncertainty.

The Crown Estate said it was reviewing its London development plans and AXA Investment Management – Real Assets said it was “considering all options” for its proposed 62-storey tower at 22 Bishopsgate, EC2.

According to Deloitte Real Estate, the London market currently has 8.2m sq ft of unlet, speculatively developed office space that will be completed between 2016 and 2020.

AXA’s global head of asset management and transactions Anne Kavanagh said that even before the vote, most banks were not financing speculative development and so the City’s pipeline was actually “relatively sustainable”.

She said it was “way too early to tell” how many projects would be funded, stalled or put on hold. The residential market was facing a supply shortage but the challenge was whether the units were being provided at the right pricing point for the domestic market, she said.

An expected rise in construction costs is likely to bite into the viability of schemes. Infrastructure law expert Richard Laudy, head of the global sector at Pinsent Masons, said that many of the UK’s construction materials were imported, so their cost would rise. Threats to tighten up immigration could also drive labour costs – overseas labour accounts for 10% across the UK and up to 50% in London.

However, long-term international investors may continue to be attracted to the UK’s credentials and buoyed by the weakened sterling. Walter Boettcher, Colliers International director of research and forecasting, said foreign funds were expected to continue to support UK development projects unless financial and political certainty deteriorated.

He said he expected projects with planning permission to continue but said no one was likely to push the button on new projects until the autumn.

What’s next for the OJEU?

The Official Journal of the European Union, which was launched in 2003, advertises contracts put out to tender by public bodies and utilities.

The regulations are expected to remain in force for now.

However, Dorothy Livingston, a consultant at Herbert Smith Freehills, said that unless the EU agrees that the OJEU can continue to carry the notices, the UK government will have to choose another publication of record, such as the London Gazette.

The legislation will have to be redrafted, but only in minor ways, she said.

The rules could even be made simpler and more flexible with the challenge process more closely aligned with the UK’s judicial review process.