London's Commercial Real Estate Freeze

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Hoping to attract occupiers, some landlords are even offering two years rent-free on leases of 10 years or more, the firm says.

The big property firms aren't the only ones suffering. Related industries from construction to engineering and architecture are feeling the pinch. Recent data from Britain's Office for National Statistics revealed an 8% decline in construction investment. And the Construction Products Assn. predicts the British construction sector will fall a further 9% in 2009, the biggest drop in three decades.

Tumbling Profits

Uxbridge-based Galliford Try (GFRD.L), one of Britain's biggest construction firms and homebuilders, has had to axe 400 staff and move to a four-day week to cope with the slowdown. On Feb. 19 the company conceded it tumbled from a $48.4 million profit to a $54 million pretax loss for the six months ended Dec. 31, 2008, compared with the same period last year. CEO Greg Fitzgerald says current conditions in the homebuilding market are "the worst in generations."

British architects would certainly agree. With the collapse in the commercial, residential, and retail property markets, architectural firms are suffering, and the slowdown is fast translating into layoffs. New data from the Office for National Statistics reveal architects are joining the ranks of the unemployed at a faster rate than any other occupation in Britain. Some 870 architects signed on to unemployment benefits in the last quarter of 2008, compared with just 135 in the same period the year before, an increase of 544%.

Even some of the profession's biggest names have had to lay off staff. On Feb. 13, Norman Foster's Foster & Partners announced plans to let go around a quarter of its 1,300-strong workforce and close two of its 17 offices around the globe. Jo Wright, managing partner at Bath- and London-based design firm FCB Studios, which won last year's prestigious Stirling Prize, says her firm had to reduce its staff by 10%, to 135, in November. "As recently as August, I was using a headhunter, but the market turned so quickly," she says. "All of our core work sectors are suffering."

Few expect conditions to improve significantly until 2012. True, some projects such as Renzo Piano's "Shard"—set to be Britain's tallest building—are still going ahead. And for potential buyers and tenants, there's one bright spot in the real estate crunch: "If you combine the fall in asset prices with the decline in the value of sterling, some properties are as much as 55% cheaper than they were just 18 months ago," says Richard Barkham, group research director at Grosvenor Group, an international property firm privately owned by the Duke of Westminster. The only problem is finding investors with the cash on hand to take advantage.

Capell is a senior writer in BusinessWeek's London bureau .