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The London Office Crane Survey

Summer 2014

London gears up for next phase of property development

  • 9.2 million sq ft of London office space now under construction
  • Activity falls for second survey running – lowest number of new starts since 2010
  • Rise in office take-up and lack of choice drives occupiers to pre-let
  • Longer-term outlook points to new phase of development

Office space across central London has been running at below-average levels for five years, according to the latest Crane Survey from Deloitte Real Estate. The report paints a picture of short-term supply constraints offset by underlying longer-term demand for space, with the next development cycle accelerating from 2016.

Headline numbers

  • 15 new starts: lowest number since 2010
  • 45% of space under construction is already let
  • only 1 new construction in the City; only West End and Midtown submarkets have seen a rise in construction levels, compared to six months ago
  • 9.2 million sq ft: current office construction volume has fallen over the past six months
  • 2014 promises a spike in completions, followed by a very limited pipeline
  • 4.5 million sq ft under demolition

Current market conditions

A rise in tenant demand is putting pressure on the current supply of Grade A space. In the short term, supply constraints are expected to tighten further, leading to rising rents in most areas of central London.

  • Lowest level of available space in central London for 6 years.
  • 2014 new starts are down and development pipeline for 2015 is also low.
  • Yields remain low as demand for investment stock remains high.
  • Return to rental growth starting to appear.

What’s the outlook?

Improving economic conditions and London’s continuing desirability are likely to positively impact on future demand for office space.

  • Rise in demolition points to imminent new wave of construction.
  • Pre-letting activity set to increase over next few months.
  • Next development peak likely to be 2017-2018.
  • Rents likely to rise over next five years, with 4% growth per annum forecast in the City and West End.

Central London development pipeline (million sq ft)

The view from Deloitte

“The developers that initiated schemes at the first signs of economic recovery in 2011/12 are now reaping the rewards, as their schemes complete at a time of reducing availability, increased tenant demand, and rental growth.

“It’s difficult to see how we will avoid a squeeze on supply across central London, and over the next 12 to 18 months, the lack of choice for some occupiers is likely to drive more pre-letting activity.

“But our analysis of the longer-term outlook for supply suggests 2017 and 2018 could be the years in which delivery really starts to recover, as the current wave of demolitions begins to translate into completed schemes.”
Anthony Duggan, Head of Research, Deloitte Real Estate

Explore the data 

Who’s building? Who’s buying?

  • Record £21billion was invested in central London property in 2013.
  • Market increasingly dominated by overseas investors.
  • Top 3 developers: Land Securities, Canary Wharf Group, British Land.
  • Top 3 contractors: Mace, Canary Wharf Contractors, Sir Robert McAlpine.

Sound bites

  • TMT (technology, media and telecoms) sector dominates share of let space (37%).
  • Planning permission is taking on average 9 months per scheme.
  • Consolidation is No 1 reason for letting new space (39%).
  • Sustainability: 83% of buildings surveyed are seeking a BREEAM rating.
  • High rise: 16 buildings of 100,000 sq ft or more are due to complete over next 3 years.
  • Cycling: buildings surveyed are set to provide 7,402 bike spaces – above London Plan and Mayor of London targets.

About the report

The Deloitte Real Estate London Office Crane Survey is the definitive survey of commercial construction in central London; this edition covers the six months to 31st March 2014.

The survey measures the volume and impact of office development (new build or significant office refurbishment of 10,000 sq ft) across central London over the next five years, and is widely used as a barometer of developers’ sentiment and future office supply.

About Deloitte Real Estate

Deloitte Real Estate redefines the concept of a full-service real estate business, offering a breadth of capability and an innovative approach unequalled in the market.

Combining property services with financial and business advisory expertise to deliver integrated solutions, we apply a depth of insight drawn from our understanding of all industries and sectors in an increasingly complex world.

For more information, visit the Deloitte Real Estate website.

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Related links

  • Real Estate Predictions 2014
    What is in store for 2014? We expect that the momentum clearly building up in the transactions market during late 2013 will continue into the start of the year and that capital values will reflect this by increasing sharply over the first few months.
  • London Futures
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Further information

Read the full report Read the full report
The London Office Crane Survey results in full.
Explore the data
An interactive selection of key statistics from the survey.
View the infographic
A visual snapshot of the key report findings.
New London Development
An interactive map outlining London development activity.
Blog Real Estate Blog
Survey related blog posts from our experts.

 

Written by

  • Anthony Duggan
    Head of Real Estate Research
    +44 (0)20 7303 3134
  • Ann Ibrahim
    Real Estate Research
    +44 (0)20 7303 3200

Contacts

  • Matthew Elliott
    Partner – City
    +44 (0)20 7303 3592
  • Stephen Peers
    Partner – West End
    +44 (0)20 7303 3260

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