Office construction in central London has increased by 24 per cent in six months, according to the London Office Crane Survey.
The latest survey, by Deloitte Real Estate, records 31 new starts, contributing 4.4 million sq ft to the 9.5 million sq ft development pipeline.
Deloitte Real Estate’s head of City leasing, Steve Johns, comments: “Developer sentiment is continuing to improve and this is good news for London’s diverse occupier base. The increase in new starts is the second highest we’ve recorded in 20 years. Nevertheless, a third of this space has already found tenants, leaving 22 of the new starts as speculative development schemes.”
The growth in construction is shared between all but two of central London’s submarkets. The City is pushing ahead with 10 new starts amounting to 1.7 million sq ft. This accounts for 39 per cent of all new activity in the survey, and just under 50 per cent of all pre-let development in central London.
In the West End there has been a 24 per cent increase in activity thanks to 11 new starts in six months. There has also been a significant increase in activity in Midtown where construction volumes rose by 44 per cent, largely driven by imminent infrastructure improvements. In addition, King’s Cross has seen three new starts, while one was recorded in Docklands.
Fifty per cent of the new schemes are being delivered by property companies (down from 60 per cent in November), with the remainder coming from institutional developers. The occupier breakdown reveals that the TMT sector leads the way, accounting for 49 per cent of take-up, followed by the financial sector on 25 per cent.
Partner and head of real estate strategy at Deloitte, Anthony Duggan, added: “We are now seeing the start of the supply response the market has been expecting.
“All thanks to the robust economic conditions, strength of London as a global city, tight existing office supply and high levels of leasing deals being transacted. However, this increase in activity will not come in time to alter the very tight supply dynamics the office market is currently experiencing.
“We expect further rises in rents and more pre-let deals on schemes under construction as tenants compete for the limited amount of available space. Looking further ahead, we expect the development pipeline to continue to increase as developer confidence translates to more active construction sites across London.”
The impact of the anticipated increase in completions will be felt at different times in the different submarkets. In the West End it will be felt next year, whereas it is not expected to reach the City until 2019.
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