If you build too much of it, they won't come. Supply > demand. Basic economics. Same story in NYC and other major metropolitan centers around the world - yes even in China.
The City already has enough empty offices to hold two- thirds of Canary Wharf, the docklands area developed 1 1/2-miles east in the 1980s to lure investment bankers. About 9 million square feet (855,000 square meters) are available in the City and that may climb to 12 million by the end of 2009, according to CB Richard Ellis Group Inc., the biggest commercial property broker. Almost 19 percent of all City offices may be vacant next year, analysts at CB Richard Ellis estimate.
“We’re in the eye of the storm,” said Bryan Higgins, chief investment officer of Irish homebuilder Menolly Group, which bought 107 Cheapside in the City three years ago for 150 million pounds ($227 million). The building has no tenants. “Supply way exceeds demand,” he said.
Rents will drop to 40 pounds per square foot by the end of this year, the same as 1991 when Canary Wharf got its first tenants, analysts at London-based King Sturge International LLP estimate. Prices declined to 46.50 pounds per square foot in the City during the first quarter from a high of 65 pounds in mid- 2007. Rents fell to as low as 30 pounds two years after Canary Wharf opened.
The City is reeling after the increase in building that followed the construction of more than 10 skyscrapers at the 97- acre Canary Wharf site along the Thames River.
Canary Wharf was perceived “as a complete threat,” said Colin Hargreaves, who leases offices in London for Jones Lang LaSalle Inc., the second-largest publicly traded commercial broker. The idea was to build “something really big, so we can fight Canary at their own game. You end up with the buildings you’ve got now,” he said.