Developers press pause on new London office schemes as construction hits all time high

Worried developers are pressing pause on new office schemes in London as the volume of commercial space under construction in the capital hits an all-time high, according to Deloitte.

The firm’s latest London office crane survey found the number of project starts in the capital has dropped by almost a fifth in the last six months, with completions also in retreat.

Some 16.4 million sq ft of office space across 127 schemes is now under construction in London following a record number of project starts last year.

Around 4.2 million sq ft of office space has broken ground across 42 schemes in the capital since last December, nearly 18% lower than Deloitte’s last survey in December.

Last year’s bumper crop of new starts was partly caused by a stack of schemes which had been delayed by high interest rates, inflation and supply chain disruption in 2022 starting construction at the same time.

Office completions are also expected to be down this year compared to 2023, which saw the second highest volume of completions in the history of the survey at 7.5 million sq ft.

Margaret Doyle, Deloitte partner and chief insights officer for financial services and real estate, said: “In response to these macro factors, we are seeing developers trying to de-risk schemes, for example, breaking up projects into discrete chunks, and delaying instructing contractors until a substantial portion of the scheme has been let.

“These defensive actions by developers appear to be behind the declines in both new start and completion volumes seen in this survey and may presage a medium to long-term supply squeeze.”

Midtown, the part of central London between the City and the West End, which includes Farringdon and Holborn, was the only area which recorded an increase in activity in the survey with an uptick of 12%.

But the total number of starts across the capital is still well above the 10-year average of 3.3 million sq ft, with refurbishment increasingly leading the way.

More than 2.5 million sq ft of the new starts over the last six months were office refurbishments, which have outperformed office newbuilds for the last eight consecutive surveys.

This trend has been particularly prevalent in the West End, where upgrades of listed buildings has seen the district edge above the City of London as the most active submarket for new construction activity due to three large new starts totalling 945,000 sq ft, although the Square Mile still had the largest long-term outlook for construction volumes.

They survey also found that 37% of all office space under construction in central London had been pre-let as of the end of March this year, with the largest proportion of this space to be occupied by the financial sector.