Developer confidence in the London office market is returning strongly, according to Deloitte’s Winter 2021 London Office Crane Survey, which shows a pipeline of significantly larger schemes than before the pandemic.
The volume of new starts has increased from 3.1 million sq ft to 3.4 million sq ft, above the long-term average of 2.4 million sq ft. Although the number of new starts has fallen, the average scheme size has increased by 28% to 122,339 sq ft, arguably a sign of greater risk appetite, suggests Deloitte.
Also reflecting healthy demand, developers now consider that three of the four main challenges come from supply constraints (construction costs, lack of sites and planning), with just one – “lack of confidence in the leasing market” − reflecting concerns about demand.
The proportion of new builds versus refurbishments, while still below 50% of the total new start volume, has increased to 46% of the total, from 33% in the Winter 2020 Crane Survey. Deloitte says: “The uptick in new builds over the past three surveys has not disrupted the emerging trend towards refurbishments, which we believe to be a structural shift that is happening for sustainability reasons.”
Three-fifths of developers say that they have made “a lot of progress… towards achieving net zero from [their] new developments”, while just 5% say they have not started. All developers in the survey said they have introduced “measures to quantify carbon emissions”.
A quarter of developers expect all their new developments to be net zero by 2024, and 45% expect to achieve this between 2025 and 2029.
Developers do not feel that there is a lack of funding for the climate change transition: just 5% believe the industry needs to “attract new sources of capital to fund net zero”.
Similarly, fewer than a third (30%) feel that legislation is needed to make net zero more commercially attractive.
Instead, reports Deloitte, “the industry is looking for support and guidance to deal with a challenge that all agree is an imperative, with just over a third saying that government and industry need to develop a greater understanding of what net zero means, and a further quarter saying they need to understand the measures to achieve net zero”.
