London office construction increases to 14.8 million sq ft, yet pace of new starts slows
15 November 2016
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. The latest London Office Crane Survey by Deloitte Real Estate has recorded 40 new starts, adding 2.8 million sq ft into the development pipeline.
“Despite an increase in the overall volume of construction, the pace of development activity has slowed compared with our last survey six months ago” said Chris Lewis, head of occupier advisory at Deloitte Real Estate. “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.”
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.”
Notes to editors
About the London Office Crane Survey:
Deloitte Real Estate’s London Office Crane Survey was first published 20 years ago, and is updated every six months, with the last edition released in May 2016. The data in this report is correct as at 30 September 2016, and covers seven major central London office markets: The City, West End, Docklands, King’s Cross, Midtown, Paddington, Southbank, 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.
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.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
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