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Confidence in the London office market has dramatically improved with an increase of new starts, according to research.
Deloitte’s London Office Crane Survey Winter 2021 shows that the volume of new office space started had increased by 10 per cent from 3.1 million square feet in the previous May survey, to 3.4 million square feet.
The number of new starts, however, has fallen, meaning that the average size of schemes has increased by 28 per cent to 122,339 square feet, which the survey report suggests is a sign of a greater appetite for risk. The proportion of pre-let volume under construction is down from 45 per cent last year to 31 per cent this year. The report says this is below the 44 per cent long-term average, suggesting that developers and investors are willing to “look through” current low occupancy because of the pandemic.
The proportion of new-builds versus refurbishments has increased to 46 per cent of the total new start volume, up from 33 per cent last year. The report points out, however, that there is still a trend towards refurbishment, which it interprets as a structural shift driven by sustainability.
Philip Parnell, real estate valuation lead at Deloitte, said that concerns over embodied carbon had also prompted an aversion to outright demolitions.
“The focus on refurbishment over redevelopment is unlikely to diminish as carbon accounting including embodied carbon and the drive to net zero continues to gather momentum,” said Parnell.
Developers also seem less concerned about the impact of homeworking on office space than at the beginning of the pandemic. In the survey, 37 per cent said they expect no impact on leasing demand from homeworking, compared with only 12 per cent a year previously.
Siobhan Godley, real estate leader at Deloitte, said that it was clear the focus for the future was on high-quality sustainable office space.
“Occupiers’ requirements are also changing as flexibility becomes a key priority to accommodate varying work patterns and the market is responding with a wider choice of leasing arrangements for offices,” she said. “Amenities continue to be shaped by the impact of the pandemic, increasingly centring on promoting health and wellbeing, from improved ventilation and mindful spaces to removing unnecessary touchpoints such as lift buttons.”
Most developers (90 per cent) believe that the leasing market is in better shape than six months ago, with 35 per cent saying it was “much better” and 55 per cent saying “a little better”, compared with 14 per cent and 43 per cent respectively in the summer.
Three-fifths of developers said they had made lots of progress in achieving net zero from new developments, with only 5 per cent saying that they had not started. And 25 per cent of those canvassed expect all new developments to be net zero by 2024, with 45 per cent expecting this by 2029.
Mike Cracknell, director of real estate at Deloitte, said: “The volume of new starts points to the resilience of demand for offices as an asset class, in spite of the dramatic shift in working practices in response to the pandemic and months of homeworking.”
The London Office Crane Survey analysed office construction data over the six months to 30 September 2021, and included a survey of London’s biggest developers conducted in September.
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