Development of new offices in central London has declined, 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.
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.”
The survey reports 25 new office schemes starting construction, adding 1.8m sq ft into the development pipeline. This is the lowest amount of new space started in over three years and 21% below the crane survey average. Dawson 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 City, development activity is down 11% with 7.3m sq ft of office space currently 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.
West End record
The West End however has witnessed a noteworthy up-tick in activity. A total of 14 new schemes have started construction, adding 657,500 sq ft to the market, 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 stated: “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.
Michael Cracknell, director in Capital Projects Advisory and author of the bi-annual survey of contractor sentiment, said: “In general, the workload sentiment for the next 12 months is expected to increase, but the level has reduced over the summer. Similar is echoed with regards to any rise in costs, contractors expect further increases albeit at a slower rate than previously witnessed.”
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.”