What a lot of cranes there are over on the north side of the river, if you’re standing on the terrace of London’s Tate Modern.
General unease regarding what might next be hit by the unfurling of current events can weasle its way in to even the most relaxed of weekend pursuits.
But despite the 6.2m sq ft under construction in the City and due for delivery by the end of 2009, according to Cushman & Wakefield, with the potential for a further 8m sq ft to come in the next five years, a glut of supply, as happened 15 years ago, is not the main cause for concern, says Jim Pickard in his property column.
C&W say that vacancy across the City and Docklands is at its lowest since the first quarter of 2002. We wonder if the City’s large occupiers may yet again prove themselves a special case – once the banks start losing money, they freeze and then retrench in terms of costs, headcount, and space really rather efficiently.
The key worry, ays Pickard, instead is that investors have overpaid for assets that will not spin off enough rent to cover debt costs. Average initial yields are just 4.5 per cent. Commercial mortgage backed securities issued by London’s property lenders rose from 34.3bn in 2004 to £18.2bn last year, he points out.
So debt has been parcelled up, and flogged on from the banks’ balance sheets to a range of financial institutions.
Oh dear. That sounds familiar.
The problem is that just as growth in bank lending on property assets has increased prices, and squeezed yields, so it may work in reverse. Borrowing will become more expensive for property, to reflect wider spreads on CMBS, suggests Pickard.
The fear of property-related contagion is also alive and well across the Atlantic. Reuters, via Seeking Alpha, tells a similar tale, with fears that the crunch on borrowing will depress the prices that commercial property will be able to attract. The squeeze on credit is prompted higher interest rates and lower loan-to-values, despite low vacancy and higher rental rates.