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However, Later In 1990, The Recession Began To Impact On The Area. Although ...


However, later in 1990, the recession began to impact on the area. Although City rents were higher than those in Docklands, Docklands' less central location and lack of transport infrastructure led to a sharp decline in demand from commercial tenants. The lack of balance of investment i.e. a preference for developing office space had arisen due to a number of investors all perceiving office space to have the best economic return. The result was oversupply and an infrastructure struggling to keep up with it: Development has run ahead of infrastructure, leading to ever-increasing congestion (DCC 1990: 13). Rents fell as a result.
Economic Precursors
The 1987 stock market crash has been attributed to mainly US factors: a current-account deficit, weak dollar, concern over inflation and a slowing of house price rises (Smith 2006). HM Treasury noted that the UK was not able to counter the fall in share prices in the way that the US and Japan were. Many US firms bought back their own shares, but UK companies were unable to do so without court and shareholder consent, which made immediate action impossible. The UK market also lacked the very large-scale investors of the US and the long-term investing institutions that helped Japan counterbalance the fall. The consequence of a stock market fall was a decline in spending which helped trigger recession, aggravated by high interest rates. Yet while this might have been a concern, the continuing economic activity in Docklands suggests a disregard for the likely consequences of the stock market crash, or an assumption that the development was strong enough to ride out the economic downturn. As Adam and Cobb state, there can have been no doubt by late 1988
that the economy was overheating (2004: 7).
Consequences for Investors
Property prices began to fall at the very end of the decade and the difficulties for investors and property owners were made worse by interest rates which had increased to 15% by October 1989 (Adam and Cobham 2004: 8). Fainstein identifies the boom-bust cycle typical of the property market as one of many risk factors in the Docklands developments, including the size of investment and time taken to recoup it: Only under the most fortuitous circumstances could any developer carry out such a project (Fainstein 1994: 204)
Olympia and York experienced severe financial problems in early 1992. Difficulties caused by a lack of liquidity of assets meant they had to secure £100m of emergency bank facilities (DCC 1992: 31) and on May 15th 1992 the company filed for protective bankruptcy in the UK and Canadian courts. As their investment was fundamental to Jubilee Line development in the area, and they had defaulted on their first £40m payment, the area's transport infrastructure development, fundamental to its potential, was delayed, decreasing the attractiveness of the area to investors.

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