Office construction in London falls 9% amid Brexit anxiety

New office space under construction in the UK capital has fallen by 9% over the previous six months, according to a new survey. New builds in London are 21% fewer than last year, refurbishments are up significantly – reflecting an increased developer caution amid continued uncertainty surrounding Brexit.

The spectre of Brexit has, for sometime, created concerns around the future viability of London as a significant location for firms. While real estate in the city saw record levels as the Pound fell dramatically earlier in the year, financial services continue to mull their exit strategies to maintain ties with the EU, meaning as many as 75,000 jobs could make their way out of the financial hub by 2019.

Housing key firms, particularly in the financial services sector, has bolstered crane activity in the region for a number of years. However, due to this uncertainty, activity has drastically cooled over recent years. In a new survey from Deloitte, the professional services firm has looked into the current numbers for office construction related activity in central London.

The total volume in central London has dipped slightly on the previous quarter, falling 9% to 12.6 million square feet. However, compared to the same quarter in 2016, activity is up somewhat. When considering the long-term trend, meanwhile, activity is up considerably – the trend stood at around 10 million square feet since 2002.

However, the firm adds that the number of new starts has fallen by more than 50% of Q1 2016, to 25 new starts in the latest survey. The volume of new starts is also relatively low, at 1.8 million square feet or 21% below the market average; an additional indication of a possible slowdown in the market.

Interestingly, while new starts have tumbled, the number of refurbishments has climbed to 70% of the total, a switch from 81% new starts and 19% refurbishments, recorded in Q1 2017. The refurbishments are largely concentrated in sixteen schemes, although, given the relatively large number of refurbishments, even against a low number of new starts, total volume per refurbishment has declined from 97,000 square feet long-term average to 73,000 square feet.

The volume was split across much of the city, with the City itself continuing to see the highest total volume relative to total activity, at 7.3 million square feet. Midtown followed, picking up 1.6 million square feet in construction volume, followed by the East end at 1.4 million.

The research notes a number of changes to the total office space under construction since the previous survey, particularly in the city, where total let space square feet fell by 24% to 2.7 million, while total available space fell 2% to 4.5 million square feet. The West end saw a number of recent finishes, significantly boost let square feet, which was up by 45%, while available square feet grew by 8%.

While other areas, such as South Bank saw significant increases, let space exploded by 217%, on average, total square feet of office under construction fell by 9%, with total let square feet decreasing by 6% and available square feet fell by 11%.  Kings Cross and Paddington saw considerable declines in total office space under construction, at 64% and 35% respectively.Financial services firms remain the dominant players when it comes to pre-completion space letting, at around 45% of the total. Corporate offices come in second, at around 24% of total in the latest survey, almost doubling from six months earlier, driven, in part, by increased co-working space demand.

Legal professional services and TMT follow, at 10%, 9% and 7% respectively. TMT, in particular, saw considerable declines over the past six months, as strategy shifted away from pre-letting, and new completed buildings were taken up.

Commenting on the latest trends, “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 2.9 million sq ft complete in this survey and, with further completions imminent, 2017 is set to deliver 7.1 million 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.”