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David Prosser: Paying more for temples in the sky

Thursday 16 December 2010 01:00 GMT
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Outlook Talking of inflation, have you seen the cost of top-end commercial property in London, which is rising at a pace that rather belies theories of a slowdown? The £557m sale yesterday by Hammerson of its Bishops Square project, now the proud home of the City law firm Allen & Overy, was at a £47m premium to the book value of the asset at the end of June, less than six months ago.

The gain reflects the stop-start nature of the commercial property sector. A few years ago, barely a day would pass without plans for a new and improbable skyscraper being unveiled in central London. Then, when the financial crisis hit, developers put their ambitions aside and placed such projects on the back burner. As a result, over the past year, as the City and the wider economy have gently begun to recover, office space shortages have begun to emerge.

Big projects take time to build, so even though many developers have now dusted off their old blueprints, these shortages aren't going to be resolved in the short term. DTZ, the consultancy, reckons that prime City rents will hit £67.50 per square foot by 2014, up from £43.50 at the end of last year. Suddenly it is boom time again.

The topping out ceremony this week of the Shard, now officially Britain's tallest building, could not have come at a more appropriate moment then. Though it too has been delayed by recessionary fears, its developers have been less risk-averse than others – which is why it is on course for completion in 2012, well before other newadditions to the London skyline.

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