The construction of new offices in central London has declined by half (50%) in six months, according to Deloitte Real Estate’s latest London Office Crane Survey. The crane survey analysed office construction data over the six months to 30 September, and included a poll of London’s biggest developers conducted at the end of September.
Siobhan Godley, partner and head of Deloitte Real EstateDeloitte Real Estate, said: “This crane survey shows a decline in new construction starts to just 2.6 million sq ft across central London. This is down significantly on our previous survey, but remains broadly in line with the survey’s long-term average. Notably, a higher than average 40% of new construction starts have already been pre-let, indicating less speculative construction.”
The total office space under construction in central London is now 15.1 million sq ft. This is similar to the level recorded in the previous survey (15.3 million sq ft, the highest since 2002) as developments are now taking longer to complete.
Mike Cracknell, director at Deloitte Real Estate, said: “Our data reveals that 3.3 million sq ft of office construction was not completed as scheduled between April and September and remains under construction. Had these projects completed on time, the total volume under construction would be almost a quarter lower.
“Of the developers we surveyed, a clear majority – 85% – pointed to weak tenant demand as the major obstacle to starting any new development. Until there is more clarity about occupiers’ office plans, developers will hesitate to embark on new projects, particularly speculative ones. Nonetheless, the news about vaccines has already resulted in a re-rating of real estate stocks, and may see both a bigger shift back to the office in the short term, and a strengthening of investor demand in London offices over the medium term.”
The reluctance start new construction has led to a shift towards major refurbishments. The survey found that more than two thirds of the new construction starts involved an extensive upgrade of existing office stock across 28 separate projects. “By transforming outdated buildings into COVID-safe, high-quality workspaces, developers are looking to upgrade and futureproof their offices in a market where occupational demand is increasingly discerning,” added Cracknell.
The City of London, which dominated construction activity in previous surveys, has seen new construction activity fall by 60% to 1.2 million sq ft across 10 schemes. Office development in the West End remained at the same level as in the previous survey, with 12 new starts breaking ground, equivalent to 500,000 sq ft. The Southbank saw five new starts over the summer, amounting to 350,000 sq ft, and Midtown observed a small uptick in new construction activity, with 500,000 sq ft across eight refurbishment schemes.
Ms. Godley concluded: “The UK is leading the way with remote working across Europe. Nearly three quarters (72%) of UK employees would like to work remotely more often in the future – 10% higher than that of European peers. Developers and investors are acutely aware of this growing trend and are thus in a state of suspension before committing to new projects, until there is more clarity in the market and occupiers reveal their future of work strategies.”