Office project bets on demand rise

IT'S a brave developer who starts London's only speculative office development this year, at a time when the market is in an oversupply crisis not seen since the early 1990s.

It takes even more courage to hire an avant-garde architect and locate the new building on the south side of Blackfriars Bridge, opposite Southwark Station and near Tate Modern. But a £67.5m contract has been signed with Skanska UK, and the building will be completed in mid-2006 with or without tenants. The scheme is funded by Bank of Scotland Structured Property Finance, which has provided £79m of senior debt finance.

Named Palestra, after the ancient Greek training academies for gladiators, the 300,000-square-foot building is designed by Will Alsop. It is more restrained than his previous efforts, as befits his first major commercial scheme, but the ground floor features his signature angled stilts and a futuristic cafe pod.

The developers, Blackfriars Investments and Royal London Asset Management, are obviously hoping for a serious office recovery in the next two years. As the amount of empty offices in central London nears 30m square feet, compared with 34m square feet in 1992, this optimism is not shared by many analysts and other developers. Nor is it shared by Land Securities, whose mixe duse development on nearby site Bankside123 will not be built until it is pre-let.

The developer's belief is that Palestra will let as one of the few newly developed schemes with large floor areas available in central London. Agent DTZ Debenham Tie Leung will market the building as a whole or in floors.

Malory Clifford of Blackfriars Investments said: 'We believe that by starting construction now, we will be able to deliver Palestra into a market where demand is outstripping supply. It only takes a very small change in demand to eat up a lot of supply, leaving a shortage. Our timing is intended to take advantage of this.

'Palestra is not a one-off for us. We are very committed to the regeneration of Southwark and are actively pursuing a number of opportunities in the borough.'

Alsop won the prestigious Stirling Prize for Peckham Library and has remodelled the interior of the refurbished Victoria House in Southampton Row.