Mergers empty City's offices

Commercial property in the City of London is facing a downturn as companies cut back on office holdings following a wave of mergers, according to new research.

Commercial property in the City of London is facing a downturn as companies cut back on office holdings following a wave of mergers, according to new research.

Surveying firm DTZ Debenham Tie Leung predicts that merger and acquisition activity will lead to the release of at least 6.4 million sq ft of surplus office space in central London by 2003. This is the equivalent of six Canary Wharf towers.

The firm says that Royal Bank of Scotland's acquisition of NatWest and Deutsche Bank's acquisition of Bankers Trust will have the biggest impact over the period.

According to APR, an independent property research group, this situation is potentially damaging for the health of the City property market. "The space will drag down rents in the City," said Paul Ives, head of research. "The City is due for a downturn next year, anyway, and this could accelerate the process."

Mr Ives said that within a year some 10 per cent of City offices could become empty, but he added "there won't be a collapse in rental values". This is because of a healthy demand for modern "grade-A" space from cash-rich corporations, which want plush offices.

However, Mr Ives warned that landlords and property companies owning lower-grade second-hand space could find the demand for their properties drying up.

The problem, said Mr Ives, will be exacerbated as more City firms are lured to Canary Wharf, in London's Docklands.

Nevertheless, there is some debate over the exact impact of the mergers. In its report, DTZ downplays the effect, saying that as long as economic growth remains at present levels the City market will survive.

The property market in the West End of London - characterised by luxurious offices in Mayfair and St James's - is expected to weather the storm because the level of vacant property is at an all-time low.

The report by DTZ comes at a time when there is growing concern among property companies and investors that the capital's property market may have reached its cyclical peak.

Already, entrepreneur Nick Leslau has called the top of the property cycle and is winding up his quoted property company Prestbury.