London Office Crane Survey The Winter Edition 2023: Recovery, rebounds and a City fightback
The London office development market has yet again shown its resilience. Our latest Crane Survey, which covers the period 1 April to 30 September, shows renewed activity and optimism among developers (although it was carried out before the start of the Israel-Gaza conflict). Read full introduction
The London office development market has yet again shown its resilience. Our latest Crane Survey, which covers the period 1 April to 30 September, shows renewed activity and optimism among developers (although it was carried out before the start of the Israel-Gaza conflict). The volume of new starts – 5.1 million sq. ft. – was the highest seen across the seven Central London submarkets since we began tracking them in 2005. As we have been forecasting for the past few surveys, new starts are dominated by refurbishments: at 3.3 million sq. ft., this is the highest on record, for the second survey in a row. It is certainly the case that the risk of stranded assets in the face of tightening minimum energy efficiency standards (MEES) regulations, and occupiers’ net zero commitments, continues to power this wave of refurbishments. But we have also seen new builds roar back from their post-pandemic nadir in the Summer 2022 survey, when they accounted for just 0.2 million sq. ft. or about 9% of the total volume of new starts. This time, new builds accounted for more than a third of the volume of new starts. Moreover, thanks to some very big new schemes, the average size of new build starts has more than doubled, from 93,000 to 203,000 sq. ft. since the previous survey. Two of these new builds – 2 Finsbury Avenue and 2 Aldermanbury Square – are in the City, helping the Square Mile regain its crown as the biggest Central London submarket, after two surveys when it was held by the West End. There is increasing acceptance and realism about sustainability requirements, with most developers now expecting to reach operational net zero across their portfolio by 2040. Developers expect that tenants will accept certain ‘green lease’ clauses, especially those that save them money, but may be more resistant to any attempt to ‘pass-through’ capital costs of upgrades. Interestingly, despite the rise of hybrid working patterns, developers seem to be more worried about supply than demand factors: the time taking to reach planning decisions was a bugbear for all developers surveyed. Moreover, developers are relatively sanguine about the impact of new technologies, such as artificial intelligence, on office demand with 10% more expecting it to increase than decrease demand for space. The macroeconomic environment for the London office market remains challenging. The outlook for geopolitics, oil prices, inflation and interest rates is uncertain. In 2024 there are also important national elections being held in the US, EU member states and most likely the UK. For now, London’s developers seem prepared to bet that, if they build premium office space, the metropolis will continue to attract occupiers. We look forward to debating this with you. Siobhan Godley Real Estate Leader, Deloitte UK
Key findings Welcome to our London Office Crane Survey Winter 2023 hub. Here you can access all of the latest commentary and data pulled together by the team at Deloitte. Once again we are focusing firmly on the data, and to make our key findings easier to navigate, we have grouped them into a series of important industry themes. We invite you to explore the thinking housed in each section, using our findings to inform your view of this fast changing market, and our interactive map to dig deeper into the different areas of London covered by the survey.
About the survey What? A report that measures the volume of office development taking place across Central London and emerging London submarkets. Where? London, covering the central office markets: The City, West End, Docklands, King's Cross, Midtown, Paddington and Southbank, and emerging submarkets: Vauxhall-Nine Elms-Battersea, Stratford and White City. Who? Developers building new offices or undertaking significant office refurbishment of 10,000 sq. ft. +. When? The survey covers the period from April 2023 to September 2023. How? Our team of researchers have walked the streets of Central London to monitor office construction. Data on office construction in the emerging London submarkets is collected through online sources. This research is then verified against data provided by developers and input from our in-house property experts.
Theme 1: Development “It is fantastic to see not only the highest volume (in sq. ft.) of new starts in office construction since we started recording the London Crane Survey, but also, from the ESG perspective, refurbishment start volumes breaking records for the second consecutive survey.” Sophie Allan, Director, Real Assets Advisory This survey has seen highest volume (in sq. ft.) of new starts on record. Refurbishment start volumes break records for the second consecutive survey. The City has recorded the highest volume of new starts among the seven Central London submarkets this survey, a dramatic comeback close to pre-pandemic levels.
Mathew Evans-Pollard Partner, Head of Development & Assurance, Development Lead +44 (0) 20 7303 3735 Sophie Allan Director, Real Assets Advisory +44 (0) 20 7303 3192
This survey has seen the highest volume (in sq. ft.) of new starts on record Central London: Volume and number of new starts per survey Source: Deloitte With 5.1 million square feet (sq. ft.) of new construction starting across 43 schemes, this survey period has seen the highest volume of new starts since we extended the Crane Survey to track new construction activity across the seven Central London submarkets in the Summer 2005 edition. This is almost 16% higher than the volume recorded in the Summer 2023 survey despite having seven fewer schemes starting. This survey 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 average new scheme size rose to c.119,000 sq. ft. from c.88,000 sq. ft. in our previous survey with the largest scheme to start this survey being British Land’s 685,000 sq. ft. new build at 2 Finsbury Avenue. Demand for premium office space is still largely fuelling the increasing construction levels this year. Notwithstanding recent government announcements in terms of Minimum Energy Efficiency Standards (MEES) regulations, there remains a policy expectation, currently, of a minimum ‘B’ by 2030, which is adding stimulus to the need to upgrade accommodation such that it aligns with the occupiers’ quality expectations. In the wake of the COVID-19 pandemic, we saw significant delays to construction which had affected overall supply, leading to greater demand for the best developments which can command higher rents and longer lease commitments.
Refurbishment start volumes break records for the second consecutive survey, while new build starts continue to rise with two large new builds in the City Central London: Volume of new starts - new build vs. refurbishment Source: Deloitte 34 new refurbishment schemes covering a total volume of 3.3 million sq. ft. have started over the survey period, thus breaking the Summer 2023 survey’s record of highest volume of refurbished starts. Stanhope’s 350,000 sq. ft. refurbishment at 25 Basinghall Street is the largest refurbishment scheme to start in this survey period. New build starts have also continued to rise with British Land’s 685,000 sq. ft. scheme at 2 Finsbury Avenue and GPE’s 322,000 sq. ft. scheme at 2 Aldermanbury Square starting during this survey period. The average size of new build starts more than doubled this survey, rising to c.203,000 sq. ft. compared with c.93,000 sq. ft. in the Summer 2023 survey. The increase we have seen in refurbishments is continually driven by the impending MEES regulations and occupational demand for premium grade office space that aligns with their ESG agendas. While the increase in new builds is likely driven by the large pre-lets such as Clifford Chance’s letting of 2 Aldermanbury Square and growing developer confidence in the demand for best-in-class office space. The City has recorded the highest volume of new starts among the seven Central London submarkets this survey, a dramatic comeback close to pre-pandemic levels Central London: Volume of new starts by submarket Source: Deloitte The City makes a dramatic comeback this survey with 2.4 million sq. ft. of office space starting across 16 schemes. This includes the two large new build starts and the largest refurbishment start mentioned in the previous section. Together these three schemes represent almost 1.4 million sq. ft. of new starts, highlighting the resilience of construction activity in the City. These developments are in line with the City’s historical trend of hosting large-scale new builds (over 500,000 sq. ft.) with large floor plates. This is in direct contrast to the West End which hasn’t had a large-scale new build start for over a decade. This highlights the inherent differences between London’s two oldest office submarkets. The leasing market is seeing some increase in space requirements as more occupiers are starting to firm up their long-term hybrid working offering. This is where the City could see an uptick in leasing activity. Looking at the other submarkets we can see that new starts in the West End have declined by 13% over the last survey to 1.1 million sq. ft. although it continues to show strong levels of activity. While Southbank has recorded an increase of 19% this survey period, largely driven by the 385,000 sq. ft. refurbishment of 76 Upper Ground. Completion volumes are up by almost a third over the Summer 2023 survey Central London: Total volume of space completed per survey Source: Deloitte This survey recorded the delivery of approximately 4 million sq. ft. of completed office space across 45 schemes in Central London. As has been the trend in recent years, this is still lower than the 5.3 million sq. ft. across 64 schemes that had been expected to complete during this survey period. At three-quarters of the estimated completions, this reflects a much-reduced disparity between estimated and actual delivery of space than in the Summer 2023 survey, which delivered less than half of all expected completions. 61 schemes with a total volume of approximately 6 million sq. ft. are now expected to complete in the Summer 2024 survey period. Although completion levels have risen over the past four survey periods, it remains unlikely that the anticipated volume will be delivered in its entirety. As anticipated in our Winter 2022 survey, we are now in the period of the great catch-up with strong completion rates, delivered at a time when the occupational market is indeed differentiating strongly between best-in-class and the rest. With new start volume exceeding the completion volume over the survey period, total volume under construction has risen by 9% over the previous survey Central London: Total volume under construction per survey Source: Deloitte 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 over the total construction volume of 14.4 million sq. ft. recorded in the Summer 2023 survey. Developers we have spoken to cite key pricing fundamentals including the continued rise in interest rates, debt availability and inflationary pressures on construction costs putting further pressure on project viability. However, with potential occupants increasingly demanding best-in-class space, the downside pressure - akin to stranding risk - is seemingly proving a catalyst for construction activity. Occupational demand has remained resilient over the survey period. As a result, while the downside stranding risks associated with accommodation quality, specification and broader ESG credentials has increasingly become an asset management motivator, the identifiable market for high quality product is providing confidence to commit and start schemes. Developers are very optimistic about the leasing market Developer Survey: Compared with six months ago, how do you currently perceive the leasing market? Source: Deloitte When asked about their perception of the leasing market compared with six-months ago, 82% of developers thought that the leasing market would be a little better in the next six-month period. It is important to note that this was specifically regarding the best-in-class office space. Despite geopolitical and economic headwinds, London has shown its resilience and competitive advantage as an eminence hub, enticing the likes of Chanel to relocate their headquarters to London’s West End. The London market has reported quite high levels of rental values. For example, 65 Davies Street reported record level rental rates at £185 per sq. ft. and rents at 38 Berkeley Square supposedly start at £175 per sq. ft. and above. This trend will likely continue for best-in-class office space while there remains a disparity between supply and demand. Legal sector pre-lets largest proportion of space in current ongoing construction projects for the third survey in a row Central London: Percentage of pre-completion lettings by sector Source: Deloitte 5.8 million sq. ft., which represents 37% of the total volume under construction in Central London, has 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. These occupiers have also been a driving factor for construction activity. For example, Clifford Chance’s letting of GPE’s 2 Aldermanbury Square has led to the 322,000 sq. ft. new build scheme starting during this survey period. Financial Services (FS) saw the biggest increase in pre-let market share this survey period. This sector has been slow to react to the need to upgrade their space. They are now doing so to address their own ESG requirements and attract talent by improving the working environment. The observed increase in activity could also be due to a rebalancing of space commitments as occupiers better understand their overall requirements and begin to explore more long-term plans. With the appetite for premium space from these sectors applying upward pressure on demand, developers remain incentivised to upgrade their existing offices and/or build new ones. Most developers have already incorporated the expected impact of the Elizabeth Line into their development plans, while others seek to build close to the stations
Developer survey: Which Central London stations do you think have experienced the greatest positive impact on occupier demand due to the opening of the Elizabeth Line?
Source: Deloitte Note: Developers were asked to rank the top three Central London stations to experience the greatest positive impact on occupier demand
Developer survey: How will the Elizabeth Line impact your development strategy over the next five years?
Source: Deloitte
Most developers see Farringdon, Tottenham Court Road and Bond Street as the top Central London stations to experience the greatest positive impact on occupier demand with the opening of the Elizabeth Line. While developers recognise the impact of the Elizabeth Line on office demand, only about a third are still acquiring or prioritising sites based on proximity to the stations. Some others have confirmed that it is a factor when acquiring new sites and some are still uncertain about the impact given the specialised nature of their portfolios. However, a majority of developers confirm that their future plans remain unaffected as the opening of the Elizabeth Line had long been anticipated and had already been included into their plans prior to the opening. Sites near mainline stations and transport hubs experience greater demand and thus have enjoyed stronger levels of rental growth. This is likely a result of occupiers trying to reduce transit time as much as possible as an additional way to entice their workforce back to the office. While developers are evaluating the impact of emerging technologies on occupier demand, they are redesigning their developments to better incorporate these technologies
Developer survey: To what extent do you believe the AI and Automation will impact the demand for office space in London?
Source: Deloitte
Developer survey: How has the growth of emerging technologies impacted your plans concerning the type and location of future office developments?
Source: Deloitte Note: Emerging technologies here refers to AI, automation, hybrid work and collaboration technology (e.g. Zoom, VR)
Due to the rapid introduction and advancement of AI and automation, we asked developers how they think such technologies will impact demand for office space in Central London. They felt that it is too early to fully comprehend the potential applications and impact of these technologies in the workplace. As a result, half of the respondents are uncertain about the impact of these technologies and 30% feel that there will be no change in demand in the foreseeable future. However, 20% of developers thought they may lead to an overall decrease in demand with these respondents adding a qualifier that this could be because of the potential for job cuts due to AI and automation. When asked about the introduction of emerging technologies, developer opinions were mixed about how they would impact their development plans. 80% of developers did comment on utilising technology to offer more dynamic, interactive and spacious workspaces to appeal to occupiers. Office fit-outs have changed in response to hybrid working: gone are the rows of desks replaced with more collaborative space in an effort to create a sense of 'connection', something difficult to achieve when working from home. Several developers have confirmed that the push to create more dynamic workspaces and to include emerging technologies in workspace design isn’t primarily driven by their expectations of the impact of these technologies. Instead, it is their aim to generate the best offices of the future that incorporate the latest technologies and features to appeal to the occupier.
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Theme 2: ESG “The drive to net zero continues to be not just a key focus for developers but a stimulus for renewal against the backdrop of a challenging macroeconomic environment. The bifurcation between occupier demand for best-in-class versus the rest is growing and driving retrofit and refurbishment activity.” Philip Parnell, Partner, Head of Valuation and Real Estate Climate & Sustainability Lead A majority of the developers anticipate that they will achieve operational net zero across their portfolio by 2040. When asked about the requirements for net zero put forth by the UK GBC, they listed limits on total Energy Use Intensity as the most challenging requirement to achieve. Also, when asked about the barriers to achieving net zero, developers highlighted the cost of construction as the biggest challenge. Green lease clauses are becoming increasingly widely adopted. In the view of developers, occupiers welcome clauses that can be seen to deliver financial savings, but may be less amenable to clauses that have the potential to increase the cost of occupation, notwithstanding their own ESG commitments.
Philip Parnell Partner, Head of Valuation and Real Estate Climate & Sustainability Lead +44 (0) 20 7303 3898 Jo Hills Director, Real Assets Advisory +44 (0) 20 7303 2098
Developers rate the limits on total Energy Use Intensity (EUI) as the most difficult net zero requirement to implement Developer survey: How would you rate the difficulty of implementing each of the following ten requirements for a new building to achieve net zero carbon in operation, according to the UK GBC (Green Building Council)? Source: Deloitte Note: Developers were asked to rate on a scale of 1-5 with 1 being the 'Least challenging' and 5 being the 'Most challenging' When considering the UK Green Building Council’s (UK GBC) Ten key requirements for new buildings to achieve net zero, we spoke to developers about the challenges they anticipate in terms of implementation. Respondents agreed that the cap on energy use intensity is the most difficult of the requirements. They believe that one of the main challenges will be distributing this energy cap among the tenants after considering the energy required to simply keep the building running. Developers ranked incorporating energy demand response and storage measures as the second most difficult requirement to implement. This is largely due to the required storage measures that are likely to have a significant impact on the design of the building. Additionally, at the moment there is no process in place for the independent verification that is required for the first five years. Another challenging requirement concerns renewable energy capacity, where any of the development’s energy uses not met by onsite renewables should be met with an investment into additional energy capacity offsite or by a commitment to a 15-year renewable energy power purchase agreement. This means that any operational energy a building needs that it is not able to create onsite must come from an investment in renewable energy. Currently, there is uncertainty among developers whether there is sufficient renewable energy capacity to power all offices across Central London.
Developers rate ‘Cost of construction’ as the most challenging barrier to achieving net zero in construction. Yet most anticipate that they will achieve operational net zero across their portfolio by 2040
Developer survey: Considering the guidelines outlined by UK GBC, how would you rate the following factors as a barriers to achieving net zero?
Source: Deloitte Note: Developers were asked to rate on a scale of 1-5 with 1 being the "Least challenging" and 5 being the "Most challenging"
Developer survey: Considering the guidelines outlined by UK GBC, by when do you anticipate achieving operational net zero across your portfolio?
Source: Deloitte
Considering the key requirements listed by the UK GBC, we asked developers to rate the difficulty of certain factors as barriers to achieving net zero. The most challenging factor, according to them, was the cost of construction. Most developers anticipate that they will be able to achieve operational net zero across their portfolio by 2040, as it is the year they aim to achieve the ESG targets in their development strategy. However, some were more cautious and were aiming for 2050 instead. Despite some of the UK GBC guidelines being difficult to implement, developers were relieved to be given thorough, actionable information. To meet the anticipated MEES deadline and remain financially viable past 2030, developers will largely focus on refurbishing office stock. Office buildings that are not going to be refurbished are at risk of ‘stranding’. This is driving developers with lower grade buildings in their portfolio to plan their development strategy accordingly. Yet, we also see developers that can invest, treating this as an opportunity to create more premium office space that is currently in high demand. Indeed, our survey has also highlighted the start of large new builds, as the race to provide best-in-class office space continues. Green lease clauses are becoming increasingly widely adopted. In the view of developers, occupiers welcome clauses that can be seen to deliver financial savings, but may be less amenable to clauses that have the potential to increase the cost of occupation, notwithstanding their own ESG commitments Developer survey: Which of the following green lease clauses do you think tenants seem readily amenable to? Source: Deloitte While the concept of green lease clauses is not new, their application has taken time to gain traction. We spoke to developers regarding the amenability of tenants to accept a range of such clauses. Developers universally indicated that tenants are conscious about ESG and wish to be seen to be doing their part. To that end, they are readily amenable to turning off lights, committing to a recycling programme, sub-metering and eliminating the use of toxic cleaning products. These seem relatively easy for tenants and are typically changes many of us make in our day-to-day lives with little additional costs. Developers seemed unsure regarding how amenable tenants would be to clauses that could inflict higher costs on them. An example could be a ‘pass-through’ clause which allows the landlord to pass on the costs of energy efficiency upgrades, such as upgrading lighting, to tenants as operating costs. The continued evolution of green lease clauses will inevitably need to tread a fine line in terms of imposing obligations that are considered ’reasonable’ and market aligned. Those that impose obligations beyond this level face the inevitable consequence of being viewed as onerous and thereby carrying the risk of rental value discounting.
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Theme 3: Investment “Investors remain cautious on large scale redevelopment due to lingering concerns over the cost of finance, construction cost inflation and supply chain issues risking returns. This is despite evidence of strong occupational demand for the highest quality space. However, a potential shortage of Grade A space in the near term coinciding with continued strong tenant demand, lower interest rates and reduced inflation is starting to get some traction.” Tony McCurley, Senior Advisor, Real Estate As first predicted in the Winter 2022 survey, 2023 is unfolding as the 'year of the catch-up' for both completions and new starts after pandemic delays with several delayed schemes starting or completing this year. Developers expect a relatively stable London office development pipeline.
Tony McCurley Senior Advisor, Real Estate +44 (0) 20 7007 0614 Lauren Raw Assistant Director, Family Office Real Estate Investment Advisory +44 (0) 20 3741 2131
With almost 6 million sq. ft. of space already delivered, 2023 is turning out to be the ‘year of the catch-up’ Central London: Future office development pipeline Source: Deloitte During our Winter 2022 London Office Crane Survey, we first predicted that 2023 would be the ‘year of the catch-up’. So far, around 6 million sq. ft. of office space has been delivered. Looking ahead, of the almost 4.7 million sq. ft. still estimated to complete in the last quarter of this year, 40% has been pre-let. In 2024, nearly 5.2 million sq. ft. is due to deliver, of which 21% has been pre-let. Looking further to 2025, a more than three-quarters (77%) of new starts have been pre-let. This equates to 2.8 million sq. ft. of best-in-class office stock. We anticipate that supply chain issues and other construction delays will continue to affect the completion dates of projects big and small. With that said, there is currently a healthy amount of super prime office stock on its way to the market. With the appetite for the best accommodation, it is likely that a large proportion will be leased quickly. It might encourage those occupiers who have been biding their time with grey (i.e. sublease) space, waiting for the right opportunity, to make a more long-term commitment. Constraints to supply bode well for the pre-leasing market. As mentioned above, we are seeing the ‘year of the catch-up’, however this will further accentuate the bifurcation in the London office market creating investment potential for opportunistic and value-add investors.
Developers expect a relatively stable London office development pipeline Developer survey: Compared with the last six months, how do you expect your pipeline to change in the next six months? Source: Deloitte When we asked developers about how they expect their pipeline to change in the next six months compared with the previous six months, almost three-quarters responded that they expect their pipeline to “stay the same”. Almost one in ten (9%) expect their pipeline to increase in the next six months, while almost one in five (18%) said they expected their pipeline to decrease due to several projects completing recently. We can see London’s resilience in its relatively stable office pipeline. In the face of geopolitical headwinds and macroeconomic factors, development activity in London has been sustained. This anticipated stability should offer a steady stream of premium grade office space as we move towards the goal of net zero. The question then becomes: what are the options for office stock that faces obsolescence?
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Theme 4: Cost “Interest rate increases have continued to impinge on development feasibility. Borrowers have now had more time to adjust to the rapid rate increases since late 2021 and, unsurprisingly, we are seeing land prices continue to reduce for new development plans as sites change hands. Lenders are prepared to back strong business plans, especially refurbishment where part income may be managed through a project and greater construction cost certainty is emerging.” Chris Holmes, Partner, Head of Real Estate Debt Advisory ‘Time taken to complete the planning process’ rises to become one of the critical challenges to construction, according to UK developers. As usual, developers continue to rate ‘cost’ as another leading challenge to construction. Given the ‘flight to quality’ and demand for ‘best-in-class’ office space developers rate supply issues as a greater challenge than demand issues.
Chris Holmes Partner, Head of Real Estate Debt Advisory +44 (0) 20 7007 2873 Sophie Allan Director, Real Assets Advisory +44 (0) 20 7303 3192
Construction pricing expectations remain high over next 12 months Construction Cost & Workload Sentiment (CC&WS) Survey: Price expectations over next 12 months; inside M25 weighted by market Source: Deloitte The results of our Construction Cost and Workload Sentiment Survey show that the rate of price increases continues to fall. 76% of respondents expect prices to continue to rise, up from 70% in the last survey. However, a small (4.5%) but growing proportion of the respondents expect prices to fall. Respondents seek to increase efficiencies by bulk/advance buying to achieve the best price. They also seek improved payment terms to achieve better cash flows. There is also a growing trend of reducing overheads to maintain competitiveness.
Planning issues rise to become one of the biggest challenges to construction, according to developers, and share the top spot with costs and economic environment Developer survey: What are the biggest challenges to development today? Note: *Options introduced in the Summer 2023 survey Note: ** Previously listed as 'Brexit' and 'COVID-19', now expanded to 'Economic environment' starting Summer 2023 survey to include factors like 'Inflation' and 'Business confidence' Source: Deloitte
According to the respondents of the latest developer survey planning issues have risen to become the number one challenge to construction. The increasing importance of this challenge has brought the impact of planning in construction to the forefront. Construction costs and the economic environment are still seen as leading challenges. Developers have noted that while the rate of cost increases has begun to slow, the costs themselves are still increasing. We have also noted that construction costs and exit yields have had a significant impact on the viability of schemes. When asked, several developers listed confidence in the leasing market as a challenge to construction, and then further clarified that this is because demand from occupiers is almost entirely focused on the best-in-class and sustainable spaces. This puts developers in a race to deliver these premium spaces not only to achieve strong rental performance, but also to mitigate the impact on cash flow and tenant incentive packages. Given the flight to quality and demand for best-in-class office space, developers consider issues affecting supply as a greater challenge than demand issues.
Developers see 'time taken to complete planning' and the 'complexity of the planning process' as the biggest planning issues hindering construction Developer survey: What are the biggest challenges to development today? - Planning issues breakdown Source: Deloitte
‘Time taken to complete the planning process’ and the ‘complexity of the planning process’ have risen to become major challenges to construction. These issues tend to delay construction significantly and be bureaucratic in nature rather than logistical. A slower planning process leads to delay bottleneck. For example, the plan to redevelop ITV’s former studios in Southbank had been approved in 2021, but the approval was then overruled at the beginning of 2023, with the next decision date not being set until October 2023. Delays like this are hitting scheme viability and delivery schedules. Developers seek a more simplified, clear and transparent planning process, believing that this will greatly help them both in meeting the MEES deadline and achieving net zero.
Labour shows a marked increase as a cost driver, while energy has a much-reduced share CC&WS Survey: If you have expressed a change in your prices over the last 12 months, we would like to understand what has driven this change Source: Deloitte While still high, the impact of energy as a cost driver has reduced this survey. Labour and materials are now almost equal as the top cost drivers. Shortages of labour and materials are growing for the substructure and superstructure trades. Trades are rationalising their overheads. They are also improving their operations with early project starts, forward engagement with suppliers and wholesalers, and better partnering. However, the market remains challenging with limited opportunities to reduce prices. UK CFOs cite geopolitics and inflation as the top risk to business, according to Deloitte’s CFO survey Deloitte CFO Survey: Risk to business posed by the following factors Source: Deloitte Note: Weighted average ratings on a scale of 0-100 where 0 stands for no risk and 100 stands for the highest possible risk Respondents to Deloitte’s latest CFO Survey rated geopolitics, followed closely by, higher inflation and the prospect of further interest rate rises, as the top risks to business. According to the respondents, concerns about disruption to energy supplies and labour shortages have eased over the last 18 months. (The survey took place between 19 September and 3 October, before the start of the conflict in Israel and Gaza on 7 October.) CFOs expect inflation to fall to 4.2% in one year’s time and to 3.1% in two years’ time. This remains above the Bank of England’s predictions. They also expect a slowdown in wage growth over the next 12 months to 4.3% from the 6.2% recorded over the last 12 months. CFOs rated government policy as the biggest driver of their climate change response. Over half the CFOs surveyed believe that their businesses will face significant or greater change over the next ten years due to the shift to a low-carbon economy, while a vast majority continue to see opportunities for their businesses in this transition.
Expectations of future workload growth have fallen compared with the previous survey CC&WS Survey: Considering your workload today, how do you think this will differ in 12 months' time? Source: Deloitte
Workload expectations have fallen since the last survey. We are seeing a mixed picture across the trades. Some are seeing reduced demand or demand flatlining, while others are planning to operate in more profitable markets and hence are not focused on growth, but on maintaining healthy margins and working capital. The pipeline of work secured has fallen to an average of 56% from the 60% recorded in the last survey.
Average price rises remain above long-term trends CC&WS Survey: What is your view as to how your prices will change over the next 12 months? Source: Deloitte
Contractors still expect prices to rise into the future. Labour costs are becoming a larger driver of price rises. Contractors say earlier engagement can help achieve improved pricing as value engineering solutions can be incorporated and materials demand can be better planned.
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