There is 11.8 million sq ft of office space currently under construction in central London according to the London Office Crane Survey, published by Deloitte Real Estate. This represents a 13% decline on the previous survey (six months ago) though still above the long term average of 10.5 million sq ft.
Mike Cracknell, director in the capital projects advisory team at Deloitte Real Estate, said:
“With 40 schemes totalling 4.2 million sq ft completing this survey, this is the highest level of office space brought to market in over 14 years. 2018 is witnessing unprecedented office completions and we are expecting almost seven million sq ft to be completed before the year is out. The 13% decline in construction is therefore driven by these completions rather than any significant reduction in new starts.”
The survey recorded 32 new office construction starts across the capital, a 23% increase on the previous survey, adding 2.6 million sq ft into the development pipeline.
The City of London continues to dominate development activity with six million sq ft (51%) of the capital’s office construction. However, development activity in the City has fallen 13% in six months largely as a result of 2.3 million sq ft completing.
The West End broke ground with 12 new schemes (754,000 sq ft) – the highest volume of new starts since early 2015, increasing this submarket’s total to 1.7 million sq ft under construction. The only other Central London submarkets to record new starts this survey were Midtown (seven), Southbank (one) and King’s Cross (one).
Cracknell continued: “Developer sentiment remains positive with above average new construction activity. There is a healthy balance with a strong occupier demand and half (49%) of the office space under construction is already committed to. Tenants with larger requirements simply cannot afford to wait for speculative schemes to become available. Locking in the right space is often crucial for attracting talent and driving business growth.”
Pre-let activity in this crane survey shows corporate firms, including co-working providers, increasing their share to 21% (1.2 million sq ft) of pre-let space. Technology, media and telecoms companies (TMT) also showed more demand for space, accounting for 28% of pre-leasing activity (1.6 million sq ft). However, financial services, previously dominating office pre-lets in London, has seen interest drop by half to just 24%.
Cracknell added: “Flexible co-working space providers taking grade A office space are enabling start-ups to emulate the talent strategy of the tech titans, rather than having to settle for secondary space. Consequently, tightness in the grade A market is offset by a relative glut in the secondary office space market.”
