Comment: Throwing money at property will end in tears

'Kvaerner's ludicrous fantasy of building a 1,000-foot tower in the City, 25 per cent higher again than anything else in Britain, is compelling evidence that the big, swinging 1980s are back with a vengeance'
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The Independent Online
It seems that only last week the pundits were calling the end of the property market cycle. In a period of sustained low inflation, they told us, there would be no more of the crazy boom and bust that had plagued the industry for so long. Property, residential and commercial, would once again be a sensible but dull investment, somewhere to live or work, not something to speculate on.

That looks like so much phooey this week, with the City and Docklands again flexing their muscles at each other, banks falling over themselves to lend on speculative developments, and rents in prime areas rising strongly once more. For a property developer these conditions are heaven. Before it ends in tears a few years from now some of them will have made their pile and cleared off to the south of France. But like last time, most will end up losing their shirts.

It all looks so familiar to those with a 10-year memory. Kvaerner's ludicrous fantasy of building a 1,000-foot tower in the City, 25 per cent higher again than anything else in Britain, is compelling evidence that the big, swinging 1980s are back with a vengeance.

Canary Wharf's coup in securing Citibank, America's second-largest bank, to its less than half-completed Manhattan on the Thames is a serious blow to the City, however much the Corporation attempts to cover the loss with statesmanlike remarks about the two business districts fighting together to maintain London's pre-eminence as a financial centre in Europe.

The fact is that on the brink of the next building boom, the stakes are higher than ever in the ill-disguised scuffle to grab the highest-profile tenants. One or two more blue-chip banks making the move down river, coupled with the completion of the Jubilee Line in 18 months, and it could be an uphill struggle to persuade tenants to stay in the congested, polluted City.

That said, the City has good reason to view the Citibank move with some equanimity. It has won the battle with English Heritage to sweep aside some of the sillier planning restrictions and there are now more cranes over the Square Mile than at any time since the last boom. Whether the banks' rush to throw money at developments, or the developers' willingness to accept the loans, will make any more sense this time around is a moot point. Until banks can think of anything else to throw their money at, and as long as developers continue to dream of 1,000-foot monuments, the property rollercoaster will be alive and well. And one thing is certain: it will all end badly.

Inward investors must look to Labour

One of the oddest things about politicians of all shades these days is their tendency to seek the blessing of "business" and "the City" for all they do and say. The voice of business is constantly cited to back this position or that. This is perhaps a good thing because if nothing else it indicates that politicians, whatever their party, have begun to take business and its views seriously once more. In truth, however, it's most of the time a disingenuous game; "business" has rarely spoken with one voice on anything.

As we approach the election, the game gets more dishonest. Nissan's firm denial of a newspaper report that it would stop investing in its Sunderland plant if a Labour Government embraced the EU's Social Chapter is a case in point.

Anybody who listens to what business people actually have to say, rather than the gloss Conservative Central Office and others want to put on it, would have spotted the implausibility of the report in the first place. Of course the business community is not keen on the idea of the Social Chapter, just as it is not keen on the national minimum wage. Both would mean more cost and less flexibility.

But for a foreign investor like Nissan, the Social Chapter is a minor issue. The key Euro-question is not whether Britain falls into line with the other EU countries on social standards, many of which big companies already satisfy. It is whether or not we stay out of the single currency.

On this issue multinationals will be far more wary about a Tory government than a Labour one. The great success story of record levels of inward investment will turn to dust if it looked as though a UK decision to opt out of the single currency would lead to gradual exclusion from European markets.

This is something which Kenneth Clarke, a politician well attuned to the needs of business, has stressed many times in his robust defence of the need to keep UK options on the single currency open. Labour is much more likely than a Tory government to join the single currency, although it has sensibly made few commitments on this front. It will also be much better placed to negotiate a reasonable deal for Britain in the event that we stay out.

Having squandered the community's goodwill towards Britain for the sake of appeasing his Euro-sceptic guerrillas, Mr Major is in a pretty much hopeless, no-win position on this front. For inward investors at least, Labour looks a better bet than the Tories.

Identity crisis at WH Smith

Eight months into the chief executive's job at that great retail under- achiever, WH Smith, and Bill Cockburn is sticking to his script. The obvious horrors in Smith's closet have already been shaken, rattled and sold. Do It All, the real nightmare, has gone. The bloated head office has been cut down and shipped off to Swindon. Layers of pen-pushing management have been stripped out.

So far, the City has applauded the aggressive shake-up, marking the shares sharply higher. But the jury is still out on longer-term prospects for a WH Smith recovery.

The nub of the problem is still the core WH Smith chain. Beset all around by competitors such as supermarkets and specialist chains, it is struggling to develop its own identity and struggling to drive sales and margins higher.

The chain faces something of an identity crisis. What is WH Smith and what does it stand for? If it is a kind of mini-department store, with an unparalleled range, then it is risking its reputation by cutting its product lines by 29 per cent.

If it wants to compete on price, it will have to cut its already thin margins, a course it will be unwilling to follow.

If it is a convenience store, then good old Smiths will have to go back to selling ciggies and sweeties.

For all this, WH Smith remains one of the best known and most trusted brand names on the British high street. Only Marks & Spencer and Boots rank higher. It has an army of 7.5 million customers and a powerful position in sectors such as children's school supplies and Christmas gifts. With the new school year starting next week, sales should be going like a train.

Mr Cockburn ought to be able to do something with such an enviable position, even if his predecessors could not. But it looks like a mighty long slog.