A report that measures the volume of office development taking place across central London has concluded that office construction is up 24% during the past six months to 9.5 million sq ft, fuelled by the greatest volume of new space to start since 2011
The Deloitte London Office Crane Survey was carried out between October 2014 and April 2015. A team of researchers walked every street in central London, including the City, the West End, Docklands and the Southbank, recording all office construction or refurbishment of 10,000 sq ft plus.
The survey found that:
- office construction in central London has risen for the first time in 18 months
- 31 new starts have been recorded adding 4.4 million sq ft to the pipeline
- growth occurred across all but two central London submarkets
- there has been a 12% rise in volume of let space under construction
- 2014 completions were at the highest level since 2003
- 3.4 million sq ft is scheduled to complete in 2015
- 6 million sq ft of space under construction is available to let – a 31% rise over the past six months.
A new wave of office construction in central London is under way across almost all submarkets. This comes at a time when the level of available office space is at its lowest for seven years.
Commenting on the survey Steve Johns, Head of City Leasing at Deloitte Real Estate said:
“While 2015 will be subdued with regard to the level of space completed, we believe that the volume of space under development will rebound further from now through to 2019.
“As the tenant diversification of markets accelerates, available product choice is enabling and even encouraging firms to move to different parts of London, and a change in working practices is impacting what tenants need from their buildings.”
The survey found that growth in residential values has slowed while office rents and yields have improved. This could reduce the number of sites lost to non-office developments.
There has also been a shift in the developer mix with the prominence of REITs beginning to reduce while institutional activity grows.
Finally, submarket boundaries are spreading, with the City extending beyond the EC postcode creating potential for development outside the confines of central London.
The rise in office construction has come too late to make a significant difference to the amount of space due to be delivered in 2015 with new office space remaining limited and a sizeable share already pre-let.
However, in coming years – 2016, 2017 and 2018 – there’s likely to be a marked increase in the amount of space completed. The potential increase in supply will be felt at different times in different parts of central London. It will come soonest in the West End in 2016, whereas in the City it will come later in 2019, and in the other markets the increase is expected in 2018.
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