London office market sees highest volume of new starts in 18 years

The London office market is roaring back to life with the past six months seeing the highest volume of new project starts in nearly two decades, Deloitte’s latest crane survey has found.

Some 5.1 million sq ft of new office space has started on site since May, the highest volume since Deloitte extended its survey to cover new central London construction activity in summer 2005.

Shovels have hit the ground on a total of 43 new schemes, which despite being seven fewer than the firm’s last survey, amounted to 16% more floorspace with the average scheme size rising from 88,000 sq ft to 119,000 sq ft.

Refurbishments also broke records for the second consecutive survey, with the 3.3 million sq ft of new retrofit work accounting for more than three quarters of new space under construction.

The trend has been driven by anticipated tightening of minimum energy efficiency regulations coupled with demand from occupiers for premium office space which aligns with their sustainability targets.

Five major schemes of at least 300,000 sq ft have got underway since Deloitte’s last survey in May, representing about 40% of the total volume of new starts, while around four million sq ft across 45 schemes has been completed in the centre of the capital during the period.

A rebounding City of London has led the way, seeing 16 new schemes starting including two major rebuilds and the survey’s largest refurbishment.

Some 124 schemes are under construction in the capital, up by 9% since May, with more than 60 of these expected to complete next year.

Margaret Doyle, Deloitte partner and chief insights officer for financial services and real estate, suggested that the uptick in construction appeared to be largely speculative

“Interestingly, developers we have spoken to seem to be more concerned about the supply of, rather than demand for, premium space,” she said.

“With the increased volume of new starts and completions reported this year, there is a healthy amount of prime office stock on its way to the market.

“Despite this, the macro-environment for the London office market remains challenging. 

“The current economic and geopolitical backdrop implies significant uncertainty about the future path of energy prices, inflation, and interest rates. 

“But for now, developers seem prepared to bet that, if they build premium office space, the metropolis will continue to attract occupiers.”

Deloitte’s findings come after British Land said London’s office market looked to be on its way to recovery following a slump caused by last year’s disastrous mini-Budget.

The firm behind Sir Robert McAlpine’s One Broadgate scheme said last week that forward looking indicators in Q3 were “very encouraging with the volume of space under offer 8% above the 10 year average and active demand 27% higher”.