Olympic area commercial property will be going for gold

Marcus Langlands Pearse, assistant fund manager, of the said: "The major winners for the 2012 Olympics are going to be the London boroughs directly affected. They will see a huge inflow of public expenditure on transport links, housing, sports related buildings and infrastructure. This regeneration is likely to have an immediate and lasting effect on East London. The other winners are likely to be the construction and construction related companies, construction suppliers, transport companies and the leisure and travel industry.

"What about the property industry though? The companies with assets, landbanks and large projects in the local areas will benefit from a boost in property prices. Land values adjacent to the Olympic site have already seen significant rises over the past two years and this is likely to continue. Although as we have seen with Multiplex and Wembley, developers of large scale landmark projects often end up struggling to make a profit.

" The London Development Agency is carrying out one of the largest compulsory purchases in UK history. This process must be complete by July 2007 to begin construction in 2008. The result has been that several of the larger businesses within the Olympic zone including Kesslers International and Cash and Carry who own just over one third of the land stock within the zone need to be relocated along with over 300 smaller local businesses. This is likely to benefit owners of land in the surrounding area.

" Canary Wharf is also likely to be a beneficiary of the Olympic success. Not just due to its proximity for the smaller retail businesses but also the 200,000 sq.ft requirement for the London Organising Committee. Although it should be noted that the requirement is 20,000 sq.ft until 2009 when it increases to 200,000 sq.ft. The requirement is unlikely to be for much beyond 2012 / 2013. There will also no doubt be a flood of contractors with smaller requirements to be nearer to the Olympic site. These requirements are hardly going to change the face of the Docklands.

" Therefore in terms of the direct effect on commercial property outside of the very immediate area, the benefit will be limited and caution should be exercised. A few large temporary requirements are going to provide nothing but a false dawn; the real benefits may be had over the next two years as the existing businesses look for premises to relocate to. On a macro-economic level, it has yet to be proved that hosting the Olympics has any long-term financial gain for the host city. The huge cost of the Olympic village, stadiums and the related infrastructure has just a six month pay-off. We have to be extremely careful to integrate any construction plans into London beyond the Olympics to avoid the costly ghost towns of the Sydney games.

" The real benefit may be much more subtle in reinforcing London as a major global player for both tourism and the financial markets. This is likely to have a city wide effect on commercial property rather than being concentrated on the Docklands. The gains are likely to be subtle and property companies and developers need to be careful not to leap into a development frenzy in anticipation of an Olympic generated boom for London. The commercial property industry has seen strong steady gains over the past few years and that can continue while the fundamentals remain strong. One of the features of past property crashes have been over supply. Levels of speculative development have been creeping up over the past two years but they are still way below the levels of the early 1990’s. The industry needs to be cautious of the Olympic effect.

" Therefore the Olympic Games of 2012, even though warmly greeted by the New Star Property Unit Trust, will not be affecting ongoing investment decisions. The Fund will continue to favour West London and the better M25 towns over the City and Canary Wharf for offices. It will continue to concentrate on good retail parks and well located industrial / distribution facilities in the South East of England; driven by planning constraints, business and population concentrations and a general shortage of available land. As yields have continued to fall, the fundamentals in commercial property have become increasingly important i.e. location, building quality and tenant quality and now is not the time for speculation particularly on the unproven economic effect of hosting the Olympic Games."