London office construction increases to 14.8 million sq ft
Central London office construction has continued to rise over the past six months, reaching 14.8 million sq ft, and setting a new eight-year development high in the capital, according to the latest London Office Crane Survey by Deloitte Real Estate
The report recorded 40 new starts, adding 2.8 million sq ft into the development pipeline.
Chris Lewis, head of occupier advisory at Deloitte Real Estate, said: “Despite an increase in the overall volume of construction, the pace of development activity has slowed compared with our last survey six months ago.
“New construction activity is down 42% from the previous survey, which recorded the highest number and volume in our survey history.
“Interestingly, it is major office refurbishments, rather than new-builds, that are fuelling this latest wave of construction. Refurbishments account for 28 out of the 40 new starts and highlight the opportunity that developers can deliver into a market that still has low levels of available office space.”
Once again, the greatest number of new starts was in the City. Construction began on 14 new schemes, totalling 1.1 million sq ft, and increases the City’s development pipeline to 8.8 million sq ft.
In contrast, the West End and Midtown submarkets have seen construction activity decrease by 25% and 20% respectively over the past six months.
This is largely as a result of a number of projects completing and smaller schemes starting. For the first time, the crane survey also tracks construction activity in three additional locations: Vauxhall-Nine Elms-Battersea, White City and Stratford.
These three areas boast 11 office schemes under construction and will deliver 2.9 million sq ft to the market, 65% of which is already pre-let.
Will Matthews, head of Insight at Deloitte Real Estate, said: “2015 and 2016 have been the most active years for new developments in two decades, with 148 schemes totalling 15 million sq ft starting construction. Many of these schemes are now nearing completion, meaning that almost 7.5 million sq ft of offices are due to be delivered between now and mid-2017.”
Lewis added: “There is 6.1 million sq ft of new space under construction already let. However, occupiers are increasingly adopting a cautious approach to leasing. The total volume of existing office space let in 2016 was down by 37% on the previous year and this is leading to greater choice and competitiveness for occupiers.”
Matthews continued: “The expected increase in completions, combined with macroeconomic uncertainty is leading some developers to defer the start-date of future speculative schemes. Our pipeline is showing the bulk of future delivery is now likely in 2019 and 2020. Nevertheless, demolition levels have increased by 12% over the six months, indicating that other developers are continuing to press ahead.”
And Lewis concluded: “Our research shows that with a marked slowdown in wider occupier demand and increasing levels of supply in the short-term, the balance is now moving in favour of London’s office occupiers.”