London office construction slows – new starts at five year low

Lowest volume of new starts in five years

Total London office construction 11.9 million sq ft - down 10%

Occupier demand remains strong

The construction of new offices breaking ground in the last six months is down by nearly a half (49%) - the lowest level of new starts for five years, according to the London Office Crane Survey by Deloitte Real Estate.

In the last six months, only 24 new schemes (1.8 million sq ft) commenced construction compared to 37 schemes (3.5 million sq ft) in the previous survey.

Mike Cracknell, director at Deloitte Real Estate, said: “The volume of new starts recorded in our latest London Crane Survey is almost 15% below the long-term average of 2.1 million sq ft. Today’s survey follows a three-year high of new construction starts, so these figures indicate a rebalancing of office development, rather than a worrying decline.”

The total volume of office construction across central London is currently 11.9 million sq ft across 92 schemes. This is a 10% decline from the previous survey but remains above the long-term average of 10.6 million sq ft.

 The City of London continues to dominate construction activity with 5.3 million sq ft under construction, representing 45% of all central London activity. However, new development has slowed considerably with only four new schemes adding just 200,000 sq ft into the development pipeline. Cracknell added: “The City is notably quiet with only one new-build office and three refurbishments commencing construction. This is significantly down from 1.2 million sq ft across 11 schemes we reported in our last survey.”   

The West End has been experiencing a steady rise in construction activity with 11 new starts, including seven refurbishments, commencing in the last six months. The West End now has 35 offices under construction set to add 2.2 million sq ft of office space to market. Midtown and the South Bank have both witnessed an increase in construction activity this survey with four and three new offices break ground respectively.  

Three million sq ft of new office space was brought to market in the last six months - up 44% from the previous survey. Cracknell said: “Occupier demand remains strong with 49% of space currently under construction already let. Occupiers are launching their searches for Grade A office space well ahead of lease expiries given the scarcity of readily available space.”

The technology, media and communications (TMT) sector has further increased its proportion of pre-let space, from 35% to 43%, with TMT occupiers signing deals outside of London’s traditional tech-hubs into areas including the City and Canary Wharf.

Cracknell continued: “Developers and landlords are less optimistic about future leasing demand than they were six months ago. When surveyed, only 18% expected occupiers’ appetite for pre-lets to improve. Developer and investor sentiment for speculative building is definitely softening as pre-letting is fast becoming the prerequisite for starting construction.

“This crane survey suggests developers are taking ‘time out’ but, looking ahead, central London still has three million sq ft of proposed office space in demolition, which indicates the next survey could see an uptick in new starts, albeit modest.”

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About the London Office Crane Survey:

Deloitte Real Estate’s London Office Crane Survey was first published over 23 years ago, and is updated every six months with the last survey published in May 2019. The data in this report is correct as at 30 September 2019.

The crane survey covers seven major central London office markets known as submarkets: The City, West End, Docklands, King’s Cross, Midtown, Paddington, Southbank, as well as three emerging submarkets: Vauxhall-Nine Elms-Battersea, White City and Stratford.

Deloitte Real Estate’s collection of central London development data commenced in 1985, and the first London Crane Survey was published in 1996.

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 five years.

The crane survey also features a ‘Construction Cost and Workload Survey’ – a survey of main and subcontractors’ sentiment to issues such as price, workload and labour.
Deloitte Real Estate’s commercial property research team is focused on producing thoughtful and insightful publications, as well as comprehensive bespoke reports for investors, developers and occupiers.

www.deloitte.co.uk/cranesurvey

About Deloitte

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Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is a subsidiary of Deloitte NWE 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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