Deloitte's London Office Crane Survey: London office development roars back

London office development roars back with record 5.1 million square feet of new construction starts

• Deloitte’s London Office Crane Survey sees the highest volume of new starts on record, led by the City;
• Refurbishment start volumes have broken records for the second consecutive survey;
• 124 schemes are currently under construction, the total volume exceeds 15 million sq. ft.;
• As first predicted in the Winter 2022 survey, 2023 is unfolding as a year of catching up post pandemic for both completions and new starts;
• The majority of developers anticipate that they will achieve operational net zero across their portfolio by 2040.

The UK’s capital has seen the highest volume of new office starts on record – with 5.1 million square feet (sq. ft.) of new construction starting across 43 schemes – according to Deloitte’s Winter 2023 London Office Crane Survey.¹

This is the highest volume of new starts since the Crane Survey was extended to track new construction activity across the seven central London submarkets² in Summer 2005. At almost 16% higher than the volume recorded in the last survey and with seven fewer schemes starting, the average new scheme size rose to c.119,000 sq. ft., from 88,000 sq. ft. previously.

Refurbishment starts specifically have broken records for the second consecutive survey,³ comprising 34 schemes covering 3.3 million sq. ft. The increase in refurbishments have again been driven by the anticipated tightening of Minimum Energy Efficiency Standard (MEES) regulations, coupled with demand for premium grade office space which aligns with tenants’ own sustainability commitments and aspirations.

Sophie Allan, director in real assets advisory at Deloitte, said: “New builds have roared back from their post-pandemic nadir, which has likely been driven by large pre-lets and growing developer confidence in the demand for premium office space. Meanwhile, refurbishments continue to play a critical role in London’s development pipeline as the increasing need to modernise office space to avoid obsolescence grows. The future will see further skyscrapers added to the City’s skyline, with three large developments recently obtaining planning permission.”

Development pipeline
This survey period has seen the start of five large (300,000 sq. ft. and above) schemes, with their collective volume representing 40% of the total new start volume. The period also recorded the delivery of approximately 4 million sq. ft. of completed office space across 45 schemes in central London. 61 schemes with a total volume of approximately 6 million sq. ft. are now expected to complete in the Summer 2024 survey period.

As of 30 September 2023, there are 124 schemes under construction across the central London market, with a total volume of 15.7 million sq. ft. This represents a 9% increase on the total construction volume of 14.4 million sq. ft. recorded in the last survey.

Margaret Doyle, partner and chief insights officer for financial services and real estate at Deloitte, said: “As predicted in last winter’s survey, the construction industry is now catching up following the pandemic. Demand for premium office space is still fuelling rising construction new starts this year, but supply chain issues and other construction delays may continue to affect completion dates. Interestingly, developers we have spoken to seem to be more concerned about the supply of, rather than demand for, premium space. With the increased volume of new starts and completions reported this year, there is a healthy amount of prime office stock on its way to the market.

“Despite this, the macro-environment for the London office market remains challenging. The current economic and geopolitical backdrop implies significant uncertainty about the future path of energy prices, inflation, and interest rates. But for now, developers seem prepared to bet that, if they build premium office space, the metropolis will continue to attract occupiers.”

The City rebounds
The survey suggests that the City of London has bounced back, with 2.4 million sq. ft. of office space starting across 16 schemes. This includes two large new build starts and the largest refurbishment start of the survey. Together these schemes represent almost 1.4 million sq. ft. of new starts. These developments are in line with the City’s historical trend of hosting large-scale new builds (over 500,000 sq. ft.) with sizeable floor plates.

Doyle added: “The leasing market is seeing activity pick-up as more occupiers are starting to firm up their working patterns. The City could see a further uptick in activity as the appetite for premium office space from certain sectors – such as professional and financial services – applies positive demand pressure. This means that developers are further incentivised to upgrade and build new offices.”

Comparatively, new starts in the West End have declined by 13% over the last survey to 1.1 million sq. ft. This is in part due to a number of developments completing during this survey period, as it continues to show strong levels of activity. Southbank has recorded an increase of 19% this survey period, largely driven by a 385,000 sq. ft. refurbishment.

Environmental, social and governance drives refurbishment
Developers anticipate that they will achieve operational net zero across their portfolios by 2040. However, developers highlighted the cost of construction as the biggest challenge in achieving net zero. With the Net Zero Carbon Buildings Standard (NZCBS)⁴ keenly awaited, when asked about the requirements for net zero put forth by the UK Green Building Council (GBC)⁵, they listed limits on total Energy Use Intensity (EUI) as the most challenging requirement to achieve.

Philip Parnell, partner and real estate valuation lead at Deloitte, said: “Occupier focus on premium space, coupled with addressing the anticipated MEES deadline and drive to net zero, is continuing to provide a strong stimulus to refurbishment activity. This is a trend that is countering the backdrop of an otherwise challenging macro-economic environment.”

Additional figures from the research showed:

• 5.8 million sq. ft. (which represents 37% of the total volume under construction in central London) have been pre-let as of the end of September 2023. Legal occupiers have taken 30% of this volume making it the most active tenant sector.
• Financial services saw the biggest increase (35%) in pre-let market share this survey period.
• Developers expect a relatively stable London office development pipeline.

-Ends-

Notes to editors
¹Conducted twice a year, the London Office Crane Survey analysed office construction data over the six months from 1 April 2023 to 30 September 2023.
²The seven sub-markets include: The City, West End, Midtown, Southbank, Docklands, Kings Cross and Paddington.
³Deloitte’s Summer London Office Crane Survey 2023.
⁴Please see more about NZCBS here.
⁵Please see more about GBC here.

About the London Office Crane Survey
Deloitte’s London Office Crane Survey measures the volume of office development taking place across central London (The City, West End, Docklands, King’s Cross, Midtown, Paddington and Southbank) and London’s submarkets (Vauxhall-Nine Elms-Battersea, Stratford, and White City.)

The first Crane Survey in London, The West End Crane Survey, was published in 1996 by Driver Jonas (later acquired by Deloitte). The first central London Crane Survey was published in 2002 (Summer survey) whilst the emerging submarkets (VNEB, Stratford and White City) were first analysed in the Summer 2016 survey.

The Crane Survey is the definitive review of office construction in central London and is seen as a barometer of developer sentiment and future office supply. The report measures the volume and impact of office development (new build or significant office refurbishments of 10,000 sq. ft. or more) currently taking place across central London and analyses the pipeline of future development over the next four years.

The Crane Survey also features a ‘Construction Cost and Workload Sentiment Survey’ – a survey of main and subcontractors, capturing market sentiment on workload and price.

Deloitte’s commercial property research team is focused on producing thoughtful and insightful publications, as well as compreensive bespoke reports for investors, developers and occupiers. www.deloitte.co.uk/cranesurvey

About Deloitte
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Deloitte LLP is a subsidiary of Deloitte NSE LLP, which is a member firm of DTTL, and is among the UK's leading professional services firms.

The information contained in this press release is correct at the time of going to press.

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