Developers are facing an unpredictable year despite the recovery in the commercial market.
Two main areas of activity, office and retail, are stable. However, they could fail to meet expectations, according to forecasts from property analysts at investment bank Merrill Lynch.
The demand for office space in the West End is picking up and the bank predicts there could be a sharp rise in rents in 2007 and 2008. In the financial district of the City of London, the number of new developments is set to increase.
Merrill Lynch suggests that a weakening global economy could affect demand in the medium term, although it remains positive for the immediate future.
Merrill Lynch suggests that a weakening global economy could affect office demand
The retail sector is likely to experience a slowdown, reflecting wider uncertainty on the high street. But the bank points out that consumer demand remains solid and in general retailers have reported strong Christmas sales.
Out-of-town shopping centres and strong city centre locations will perform well but the outlook for retail parks is more uncertain.
More generally, the bank believes that developers such as Land Securities and British Land that have converted to REIT status will be looking to buy private property companies with capital gains tax liabilities.