Deloitte forecasts pre-Millennial level growth in London office space

05 June 2017 5 min. read

London will continue to see the addition of new Grade A office space, a new report finds. This year will see the highest development completion levels since 2003, while the coming years are predicted to see above average activity not seen since before the turn of the century.

According to the latest half-yearly survey from Deloitte, titled 'Development: Shifting Gears? London office crane survey ', London can expect to see a sustained boom in new premium office space. The report, which explored current office development conditions and trends across the UK capital projects above average activity in the sector in the near future.

Central London total volume under construction by submarket

According researchers’ latest analysis of crane activity across the city’s centre, around 13.9 million square feet of office space is under construction. The largest segment remains the financial district of the City of London, which predictably is larger than all other submarkets combined at 8.2 million square feet. Midtown follows on 1.8 million square feet. The West End and Docklands pull in 1.2 million and 1.0 million square feet in volume under construction between them.

Deloitte’s whitepaper also noted that considerable developmental space has joined the total volume under construction, with 14 new projects commencing. One project however, at 22 Bishopgate, accounts for around 40% of the total 2.6 million square feet of new development.

Central London total office space under construction

The study notes a number of changes in terms of the location of projects across central London. The City, while by far the largest in terms of space under development, has seen its share fall by 7% since the previous survey. The West End has seen its share fall by the greatest margin at 27% on the previous survey. Midtown and Southbank both saw growth however, up 9% and 6% respectively. In total, development decreased by 6% on the previous survey.

While total space under construction has decreased on the previous survey, the level of available space and the level of let space – in terms of the total available space – too has decreased as a result.

Central London office development pipeline

2017 is, according to the firm’s analysis, set to see the largest level of completed projects since 2004, up considerably on years like 2011 and 2012. Completion rates of the following years – as it stands – will be considerably lower than this years’ result.

In terms of available office space in the near-term, around a 2.5 million square feet is set to be available in 2017, with similar levels still available in 2018 and 2019. The firm notes that uncertainty from Brexit is likely to affect market dynamics, however, the firm notes that the next five years at least will continue to see considerable additions to the construction timeline.

Shaun Dawson, author of the London Office Crane Survey at Deloitte, said: “The sheer volume of completed space is no surprise given the surge in development activity 18 months ago. In total 4.4 million sq ft completed in 2016 and this momentum has continued into 2017, we expect this year’s annual total delivery to be the highest since 2003.”

Central London office development pipeline forecast

In terms of the firm’s forecast for the years to 2021, completion rates are set to hit heights not seen since the late eighties and early nineties. Following a slow 2018, in which around 6 million square feet is expected, 2019 will be a more robust year – according to the forecast – at around 10 million square feet. By 2020 speculative forecasts add up to 7 million square feet, to a total of more than 12 million square feet. By 2021, however, the office development is speculatively forecast to decrease to around 9 million square feet.

The reason for the stark increase in 2017 and 2019 of office space completion is, according to the firm, in part the result of schemes in the preceding years being deferred. Across the segment as a whole however, the following years are forecast to remain considerable above the long-term average in terms of development.

Nigel Shilton, Managing Partner at Deloitte Real Estate, added, “The decrease in overall volume of space under construction could suggest that developers have slowed down, yet this is more a result of timing and two years of elevated levels of construction completing rather than developers holding off. Demolition levels remain high at 7.9 million sq ft, which chimes with the sentiment of our surveyed contractors who expect a rise in workload over the coming 12 months. Looking at the development pipeline, we forecast around 39 million sq ft to be delivered by 2021. Very few schemes have been cancelled, highlighting continuing developer confidence.”

Central London percentage of pre-completion letting space by sector

The study finds that financial services firm continue to be the biggest consumer of pre-completion letting space, picking up around 46% of total pre-let space. TMT players take second spot on 21% of pre-let space, while corporates and legal pick up a further 13% each. Professional services firms, insurance firms and other complete the pie at 5%, 2% and 1% each.