The latest Drivers Jonas (DJ) Central London Crane Survey predicts a challenging time ahead for commercial property investors and developers.

It claims that conditions in London’s current office market following the economic and financial turmoil have left developers wondering where they are going to find tenants for their new buildings and a 15% increase of speculative space under construction.

Weakening demand for the City office market comes at the same time as the construction activity is its highest since the early 1990s. This will translate into more choice and lower rents for occupiers who have been at the mercy of the landlords for some time now. Outside the City market, developers can be more upbeat as building activity in general remains more constrained.

Not all doom and gloom, DJ notes that developers are now not starting work on new City schemes which means an under supply in 2011 and 2012. Across London, new starts have slowed considerably since the last survey (six months ago) from 46 new developments to just 26. DJ predicts this trend to continue into the next report as the research shows that few London developers are confident enough (or can secure funding) to develop into 2011/12. Given time to readjust, and the over-supply is absorbed, the market will once again become under-supplied and start to show positive rental growth.

Anthony Duggan, partner and head of research at Drivers Jonas, said: “It’s a symptom of the dynamics of the property market that means that construction is still rising while the demand dynamics are heading in the opposite direction. However, we have seen a reduction in the number of schemes started and we expect a further reduction in the next survey. Also remember, in some of the London submarkets construction still looks a viable prospect. Southwark, for example, saw two new starts in this survey – this doubles the number to just four relatively small schemes under construction in this market, and nothing at all completing this year. It would be unfair to tar the whole of Central London with the City brush.”