The London Office Crane Survey - Winter 2014
Office space across central London has been running at below-average levels for five years, according to the latest Crane Survey from Deloitte Real Estate.
The report paints a picture of short-term supply constraints offset by underlying longer-term demand for space, with the next development cycle accelerating from 2016.
- Office space under construction has fallen to a three-year low of 7.7 million sq ft
- Newly completed space hits a ten-year high of 3.7 million sq ft
- Consolidation remains the key driver of tenant movement
- Rents are forecast to continue rising
The total volume of London office space under construction has fallen to a three-year low as completions reach a ten-year high, according to the latest Crane Survey from Deloitte Real Estate. The volume of new space started has almost doubled since the last survey, driven by a number of significant new schemes in the City.
- 7.7 million sq ft: current office construction volume has fallen 17% over the past six months
- 22 new starts: almost double the volume of new space recorded in the last survey
- 41% of space under construction is already let
- 2015 is likely to deliver one of the lowest volumes of space in twenty years
- 4.5 million sq ft: demolition levels increase by 18%
Market activity and sentiment
The fall in construction volumes is closely linked to the high level of completions in the past six months. Strong take-up levels point to a background of continuing economic and property market confidence.
- The City accounts for three quarters of new space under construction – no new buildings have started construction in Southbank, Midtown or Docklands areas.
- The largest new pre-let start this survey is 1 London Wall Place, at 309,000 sq ft.
- Risk appetite among CFOs has hit a seven-year high, and office take-up is running at a ten-year high.
- Return to rental growth starting to appear.
What’s the outlook?
Committed development after 2014 is currently low, but rising demolition levels suggest that more new starts are not far away. Demand is expected to remain strong, and rents will continue to rise over the next few years.
- 4.5 million sq ft of available space – only about twelve months of supply – is under construction for delivery over the next three years
- Demolition activity in Midtown alone has risen by almost 50% in six months
- Next two to three years show an undersupply of new space compared to the average level of demand per year
- Rents are forecast to grow over the next four years: 5.5% in the City and 8.7% in the West End during 2015
The view from Deloitte
“The sharpest rise in construction starts is in the City of London, where 10 new office buildings are now underway. This includes over a million sq ft in the City core and over 500,000 sq ft in ‘tech city’, accounting for three quarters of the volume of space across all the new schemes we’ve recorded. The West End has also seen 10 new starts, adding 462,000 sq ft to the development pipeline, while Southbank, Midtown and Docklands have seen no new construction this survey.
“Office construction is down 17 per cent in the last 6 months, but we have seen 3.7 million sq ft of completions over the last six months, a ten year high. To put that into context, a third of this space is within two City towers, with the remaining space across 22 central London buildings. However, 58 per cent of this space was already let, demonstrating the strength of occupier demand. Similarly, of the total 7.7 million sq ft of space under construction, 41 per cent is already let.
“Despite a healthy pipeline of activity, 2015 is likely to deliver the lowest volumes of space in 20 years.
“With occupier demand expected to remain strong we foresee further increases in pre-letting activity, and demand for the best space to exceed new supply for the next three years. Nevertheless, with over five million sq ft now being demolished - a rise of 18 per cent in six months - developers are racing against the clock to deliver buildings while new supply remains relatively low.”
Steve Johns, Head of City Leasing at Deloitte Real Estate
About the report
The Deloitte Real Estate London Office Crane Survey is the definitive survey of commercial construction in central London; this edition covers the six months to 30 September 2014.
The survey measures the volume and impact of office development (new build or significant office refurbishment of 10,000 sq ft) across central London over the next five years, and is widely used as a barometer of developers’ sentiment and future office supply.
About Deloitte Real Estate
Deloitte Real Estate redefines the concept of a full-service real estate business, offering a breadth of capability and an innovative approach unequalled in the market.
Combining property services with financial and business advisory expertise to deliver integrated solutions, we apply a depth of insight drawn from our understanding of all industries and sectors in an increasingly complex world.