The number of new office developments starting in London has dropped by 9% in the past six months, according to a study by consultant Deloitte.
According to the latest London Office Crane Survey by Deloitte Real Estate, construction activity now totals 12.6m sq ft, a 9% drop since the previous survey six months ago.
The survey reports 25 new office schemes starting construction, adding 1.8m sq ft to the development pipeline. This is the lowest amount of new space started in more than three years and 21% below the crane survey average.
In the City, development activity is down 11% with 7.3m sq ft of office space under construction. Only eight new schemes started in this period, representing 804,000 sq ft. This is significantly lower than the 1.1m sq ft average. However, this reduction follows 3.4m sq ft completing in 2017 so far, the highest volume to complete in the City since 2000.
Shaun Dawson, head of insight at Deloitte Real Estate, said: “We have seen slowdown in development activity with the last two crane surveys recording a fall, but total volumes still remain high compared to our long-term average, continuing to stay above 10m sq ft since 2015.”
He added: “It is this reduced volume of new space starting that could indicate a slowdown and suggests a cautionary approach by developers over the past year.”
In the West End, however, there has been a noteworthy up-tick in activity. Construction has started on 14 new schemes totalling 657,500 sq ft, the greatest number of new starts recorded in a single crane survey for this submarket.
Alongside existing activity, there is now 1.4m sq ft being built across the West End – a 20% increase since the last survey.
Refurbishment schemes once again dominate the new starts with 16 offices accounting for 70% of the volume. However, refurbishments are generally smaller scale than new builds so the average size of schemes starting this survey has fallen to 73,000 sq ft, lower than the long-term average of 97,000 sq ft.
Dawson added: “Construction is down and this is largely as a result of the high volume of schemes recently completed and delivered to market. We’ve recorded 2.9m sq ft complete in this survey and, with further completions imminent, 2017 is set to deliver 7.1m sq ft of office space, the highest volume for 13 years.
“Despite ongoing uncertainty, occupier demand for new space has remained resilient as 44% of space under construction is already let.”
Construction costs are likely to rise as additional research by Deloitte Real Estate points to a slower pace of workload and price rises over the coming year.
Dawson concluded: “Developers in central London continue to take stock of the current market dynamics recognising a number of disrupting factors such as costs, Brexit uncertainty and the pace of workplace change.
“We’re seeing a continued shift in timings for proposed schemes. With almost static levels of demolition hovering around 8m sq ft, developers are showing some caution on where and when to deliver schemes to market.”
Crane report key facts
Source: Deloitte Real Estate
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