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London Office Crane Survey The Summer 2024 Edition Emerging optimism as inflation falls
Buffeted by uncertainty as they may be, developers continue to put their faith in the London office market. While the volume of new starts has fallen 18% from Winter 2023’s record high, at 4.2 million sq. ft. it is well above the ten-year average of 3.3 million sq. ft. Read full introduction
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Buffeted by uncertainty as they may be, developers continue to put their faith in the London office market. While the volume of new starts has fallen 18% from Winter 2023's record high, at 4.2 million sq. ft. it is well above the ten-year average of 3.3 million sq. ft. As before, a big driver of construction is the tightening of the Minimum Energy Efficiency Standards signalled by the UK government. Given that 80% of London offices had an Energy Performance Certificate (EPC) below the proposed 2030 minimum 'B' level as recently as 2021, there is much work to be done to ensure that these assets are not stranded. This risk of obsolescence explains why refurbishment volumes have outstripped that of new builds for the eighth survey in a row, and why, for the third consecutive survey, refurbishment volumes exceed 2.5 million sq. ft. The West End has yet again edged ahead in its recent tussle with the City – traditionally dominant in new office construction – in new start volumes thanks to three large new starts. With their high proportion of 'listed' (protected) buildings, the historical West End neighbourhoods of Mayfair and St James's lend themselves well to refurbishment. Meanwhile, Midtown, the district encompassing Holborn and Farringdon, was the only one of the remaining submarkets to show an increase in construction starts, of almost 12%. This is largely due to Farringdon's new Elizabeth Line station, connecting Clerkenwell, on the City's fringe, to Heathrow for the first time as well as, by railway, to Luton and Gatwick airports. This resilience is striking in the face of the undoubted challenges faced by developers. CFOs cited 'geopolitical risks' as the top risk to business in Deloitte's latest quarterly UK CFO survey. Over recent years, we have seen how the COVID-19 pandemic interrupted supply chains, and then Russia's invasion of Ukraine sparked inflation for developers. And, while Brexit has tumbled to the bottom of CFO concerns, at the border customs delays are causing problems for contractors. In our Construction survey, they are telling us that lead times are increasing, with greater contingencies having to be built in for both delays and price rises. Planning delays remain a top bugbear for developers. Such delays are a big reason why the volume under construction is at a record high of 16.4 million sq. ft. But in addition to unforeseen events, we also notice that some developers proactively break up projects in order to de-risk them. They sign construction contracts that cover the minimum amount of work required to negotiate pre-lets with occupiers. By doing so, greater liabilities are only undertaken when a certain amount of space, and rent, have been guaranteed. We cannot say that London developers are sailing in calm waters, but they do seem to have made themselves more storm-proof for any squalls ahead. Siobhan Godley Real Estate Leader, Deloitte UK
Key findings Welcome to our London Office Crane Survey Summer 2024 hub. Here you can access all of the latest commentary and data pulled together by the team at Deloitte. Once again we are focusing firmly on the data, and to make our key findings easier to navigate, we have grouped them into a series of important industry themes. We invite you to explore the thinking housed in each section, using our findings to inform your view of this fast changing market, and our interactive map to dig deeper into the different areas of London covered by the survey.
About the survey
About the survey What? A report that measures the volume of office development taking place across Central London. Where? London, covering the seven central office markets: The City, West End, Docklands, King's Cross, Midtown, Paddington and Southbank. Who? Developers building new offices or undertaking significant office refurbishment of 10,000 sq. ft. +. When? The survey covers the period from October 2023 to March 2024. How? Our team of researchers have walked the streets of Central London to monitor office construction. This research is then verified against data provided by developers and input from our in-house property experts.
Theme 1: Development “The tightening of Minimum Energy Efficiency Standards signalled by the UK government, and rising occupier demand for premium office space, continues to drive persistently high levels of construction activity in Central London with new construction starts exceeding 4 million sq. ft. for the third survey in a row.” Sophie Allan, Director, Real Assets Advisory
  • The volume of new starts has dipped by 18% this survey period, yet it remains well above the ten-year average.
  • Thanks to three large new starts, the West End takes back the lead from the City as the most active submarket in terms of new construction activity.
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    Sophie Allan Director, Real Assets Advisory +44 (0) 20 7303 3192 sophieallan@deloitte.co.uk
    The volume of new starts has dipped by 18% this survey period, yet it remains well above the ten-year average. Central London: Volume and number of new starts per survey Source: Deloitte
  • This survey records 4.2 million square feet (sq. ft.) starting across 42 schemes. This represents an 18% decrease when compared with the Winter 2023 survey, which had reported the highest volume of new starts on record. Despite this dip, new start volume this survey is well above the ten-year average of 3.3 million sq. ft. For the first time in the history of the London Office Crane Survey, we have seen new start volumes exceeding 4.0 million sq. ft. for three consecutive editions.
  • Of the volume mentioned above, approximately 3.2 million sq. ft. is available, which means that almost 24% was pre-let by the close of this survey period. Of the 1.0 million sq. ft. that has been let, 56% was taken by the Financial sector.
  • The tightening of the Minimum Energy Efficiency Standards (MEES) that has been signalled by the UK government, and rising occupier demand for premium office space, continue to drive these persistently high levels of construction activity in Central London.
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  • This survey records 4.2 million square feet (sq. ft.) starting across 42 schemes. This represents an 18% decrease when compared with the Winter 2023 survey, which had reported the highest volume of new starts on record. Despite this dip, new start volume this survey is well above the ten-year average of 3.3 million sq. ft. For the first time in the history of the London Office Crane Survey, we have seen new start volumes exceeding 4.0 million sq. ft. for three consecutive editions.
  • Of the volume mentioned above, approximately 3.2 million sq. ft. is available, which means that almost 24% was pre-let by the close of this survey period. Of the 1.0 million sq. ft. that has been let, 56% was taken by the Financial sector.
  • The tightening of the Minimum Energy Efficiency Standards (MEES) that has been signalled by the UK government, and rising occupier demand for premium office space, continue to drive these persistently high levels of construction activity in Central London.
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    Thanks to three large new starts, the West End takes back the lead from the City as the most active submarket in terms of new construction activity. Central London: Volume of new starts by submarket Source: Deloitte
  • Three large new starts (over 200,000 sq. ft.) make the West End the most dominant submarket this survey period. These large schemes account for almost half of the total volume of new starts in the West End this survey. As mentioned in previous surveys, the market shift towards refurbishment lends itself well to the West End, with its smaller floorplates and heritage buildings.
  • In recent surveys, we have seen a back and forth between the City and West End for the lead as the most active submarket in terms of new construction activity. London’s two oldest submarkets have shown marked resilience throughout the rapidly changing environment in response to factors such as COVID-19 and MEES regulations.
  • Among the other submarkets, only Midtown has recorded an increase in activity this survey, reporting a near 12% uptick. The remaining submarkets have seen a decline in activity. The recent increase in new construction in Midtown is driven by the regeneration of Farringdon. With the arrival of the Elizabeth Line, Farringdon is now a key nodal point between multiple links across London.
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  • Three large new starts (over 200,000 sq. ft.) make the West End the most dominant submarket this survey period. These large schemes account for almost half of the total volume of new starts in the West End this survey. As mentioned in previous surveys, the market shift towards refurbishment lends itself well to the West End, with its smaller floorplates and heritage buildings.
  • In recent surveys, we have seen a back and forth between the City and West End for the lead as the most active submarket in terms of new construction activity. London’s two oldest submarkets have shown marked resilience throughout the rapidly changing environment in response to factors such as COVID-19 and MEES regulations.
  • Among the other submarkets, only Midtown has recorded an increase in activity this survey, reporting a near 12% uptick. The remaining submarkets have seen a decline in activity. The recent increase in new construction in Midtown is driven by the regeneration of Farringdon. With the arrival of the Elizabeth Line, Farringdon is now a key nodal point between multiple links across London.
    •      Completion volumes drop by almost 13% this survey period to 3.5 million sq. ft., equating to 58% of previous projections based on estimated completion dates. Central London: Total volume of space completed per survey Source: Deloitte
  • This survey recorded the delivery of 3.5 million sq. ft. of office space across 39 schemes in Central London – a 13% drop from the 4.0 million sq. ft. delivered during the previous survey.
  • Based on developer estimated completion dates, the Winter 2023 survey projected that 6.0 million sq. ft. across 61 schemes would deliver in this survey period. Only 58% of the projected volume was realised this survey. Such a variance between anticipated delivery levels and actual completions is not new. Indeed, in no previous survey has actual completion come in above the predicted levels. In some respects, this illustrates the developers’ ability to moderate their pipeline according to market conditions. Nonetheless, actual delivery has ranged between 45% to 75% of the preceding projections since the Summer 2022 survey and the current ten-year average completion rate is 69%.
  • 3.8 million sq. ft. across 54 schemes have been predicted to complete during the Winter 2024 survey period based on the latest developer estimates. Factoring in the recent completion rates, Deloitte expects the actual delivery to be somewhere between 1.7 to 2.9 million sq. ft.
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  • This survey recorded the delivery of 3.5 million sq. ft. of office space across 39 schemes in Central London – a 13% drop from the 4.0 million sq. ft. delivered during the previous survey.
  • Based on developer estimated completion dates, the Winter 2023 survey projected that 6.0 million sq. ft. across 61 schemes would deliver in this survey period. Only 58% of the projected volume was realised this survey. Such a variance between anticipated delivery levels and actual completions is not new. Indeed, in no previous survey has actual completion come in above the predicted levels. In some respects, this illustrates the developers’ ability to moderate their pipeline according to market conditions. Nonetheless, actual delivery has ranged between 45% to 75% of the preceding projections since the Summer 2022 survey and the current ten-year average completion rate is 69%.
  • 3.8 million sq. ft. across 54 schemes have been predicted to complete during the Winter 2024 survey period based on the latest developer estimates. Factoring in the recent completion rates, Deloitte expects the actual delivery to be somewhere between 1.7 to 2.9 million sq. ft.
    •      Record high volume under construction of 16.4 million sq. ft. seen at the end of this survey. Central London: Total volume under construction per survey Source: Deloitte
  • The volume under construction had reached an all-time high of 16.4 million sq. ft. across 127 schemes as at the end of our survey on 31 March 2024. Significantly, the 12.2 million sq. ft. of ongoing construction across 85 schemes carried over from the previous surveys made up 74% of this volume.
  • There are several reasons that the ongoing construction volume is so high. There have been delays in construction due to a level of uncertainty in the market. This has been caused by high interest and inflation rates, rising costs and geopolitical and economic headwinds. There have also been instances of developments being put on hold until a certain volume of pre-lets have been obtained before committing to the rest of the scheme.
  • The decline in both new start and completion volume, as seen in this survey, may presage a medium- to long-term supply squeeze. This creates a cycle that can be seen in the chart above, where construction volumes rise and fall. Developers ‘tempering’ delivery could lead to increased pre-let activity as occupiers seek to de-risk the practical reality of securing office relocation, that could in turn provide a potential stimulus for rental growth.
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  • The volume under construction had reached an all-time high of 16.4 million sq. ft. across 127 schemes as at the end of our survey on 31 March 2024. Significantly, the 12.2 million sq. ft. of ongoing construction across 85 schemes carried over from the previous surveys made up 74% of this volume.
  • There are several reasons that the ongoing construction volume is so high. There have been delays in construction due to a level of uncertainty in the market. This has been caused by high interest and inflation rates, rising costs and geopolitical and economic headwinds. There have also been instances of developments being put on hold until a certain volume of pre-lets have been obtained before committing to the rest of the scheme.
  • The decline in both new start and completion volume, as seen in this survey, may presage a medium- to long-term supply squeeze. This creates a cycle that can be seen in the chart above, where construction volumes rise and fall. Developers ‘tempering’ delivery could lead to increased pre-let activity as occupiers seek to de-risk the practical reality of securing office relocation, that could in turn provide a potential stimulus for rental growth.
    •      Developers are optimistic about the leasing market. Developer Survey: Compared with six months ago, how do you currently perceive the leasing market? Source: Deloitte
  • Developers surveyed are optimistic about the leasing market with all respondents perceiving the current market as ‘better’ than six months ago. They commented that demand for premium office space remains high, particularly in the City and West End.
  • Leasing activity during this survey period reached approximately 5.8 million sq. ft. The City especially has demonstrated its strength by surpassing the ten-year annual take-up average by 7% in the year 2023. The West End was more subdued in 2023 with a 12% decrease in leasing activity when compared with the ten-year average.
  • Despite the seeming reduction in demand, the West End continues to attract marquee names. For example, in the past year luxury group Chanel has committed to 20 years in a newly built Grade A headquarters on Berkeley Square. Such activity lends weight to the Central London office agents’ adage that ‘if you build it, they will lease it’.
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  • Developers surveyed are optimistic about the leasing market with all respondents perceiving the current market as ‘better’ than six months ago. They commented that demand for premium office space remains high, particularly in the City and West End.
  • Leasing activity during this survey period reached approximately 5.8 million sq. ft. The City especially has demonstrated its strength by surpassing the ten-year annual take-up average by 7% in the year 2023. The West End was more subdued in 2023 with a 12% decrease in leasing activity when compared with the ten-year average.
  • Despite the seeming reduction in demand, the West End continues to attract marquee names. For example, in the past year luxury group Chanel has committed to 20 years in a newly built Grade A headquarters on Berkeley Square. Such activity lends weight to the Central London office agents’ adage that ‘if you build it, they will lease it’.
    •      The Financial sector has pre-let the largest proportion of office space in ongoing construction projects. Central London: Percentage of pre-completion lettings by sector Source: Deloitte
  • 6.0 million sq. ft., which represents 37% of the total volume under construction in Central London, has been pre-let as of 31 March 2024. The Financial sector was the most active, accounting for 38% of this volume. This is in line with the upward curve of growth in the Financial sector’s share of pre-completion lettings since the Winter 2022 survey.
  • In previous surveys we noted that the Financial sector was slow to upgrade their office accommodation. The increase in activity here appears to be driven by ‘right-sizing’ in financial firms, the broader ESG agenda and the need to accommodate today’s ideal working conditions.
  • There has been a decline in large Technology, Media and Telecommunications (TMT) pre-lets, coming off several years when TMT dominated take-up. Combined with the recent completion of buildings that had large TMT pre-let commitments has led to a steady level of decline in the TMT sector's share of pre-completion lettings.
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  • 6.0 million sq. ft., which represents 37% of the total volume under construction in Central London, has been pre-let as of 31 March 2024. The Financial sector was the most active, accounting for 38% of this volume. This is in line with the upward curve of growth in the Financial sector’s share of pre-completion lettings since the Winter 2022 survey.
  • In previous surveys we noted that the Financial sector was slow to upgrade their office accommodation. The increase in activity here appears to be driven by ‘right-sizing’ in financial firms, the broader ESG agenda and the need to accommodate today’s ideal working conditions.
  • There has been a decline in large Technology, Media and Telecommunications (TMT) pre-lets, coming off several years when TMT dominated take-up. Combined with the recent completion of buildings that had large TMT pre-let commitments has led to a steady level of decline in the TMT sector's share of pre-completion lettings.
    •      Developers are recognising the need to accommodate AI & Automation within schemes with moderate levels of investment anticipated.
    Developer survey: To what extent do you anticipate you will invest in AI & Automation in your office developments in London?
    Source: Deloitte
    Developer survey: How do you anticipate you will utilise AI & Automation in your office developments in London?
    Source: Deloitte
  • In response to rapidly evolving technologies, we spoke to developers about their plans for investing and utilising Artificial Intelligence (AI) & Automation. Half of them said that they plan to make moderate investment in AI & Automation.
  • When asked to elaborate on the areas they would focus this investment, developers said they would prioritise ESG tracking and data gathering as well as technology-enabled meeting/presentation rooms. The latter is in part a response to the rise in hybrid working and occupiers’ desire to ensure efficient and effective communications. This is important as tech issues can lead employees to seek a new job or even a new industry.
  • Developers are, for the most part, still exploring the potential applications of AI & Automation in the London office development market. There is no doubt that effective tech enabling can add value to a development. Improved security is an important factor that is often overlooked. With hybrid working patterns settling as a permanent fixture, it is important for an office to be welcoming and safe. Improved security is one area with potential for application of AI & Automation in the future.
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  • In response to rapidly evolving technologies, we spoke to developers about their plans for investing and utilising Artificial Intelligence (AI) & Automation. Half of them said that they plan to make moderate investment in AI & Automation.
  • When asked to elaborate on the areas they would focus this investment, developers said they would prioritise ESG tracking and data gathering as well as technology-enabled meeting/presentation rooms. The latter is in part a response to the rise in hybrid working and occupiers’ desire to ensure efficient and effective communications. This is important as tech issues can lead employees to seek a new job or even a new industry.
  • Developers are, for the most part, still exploring the potential applications of AI & Automation in the London office development market. There is no doubt that effective tech enabling can add value to a development. Improved security is an important factor that is often overlooked. With hybrid working patterns settling as a permanent fixture, it is important for an office to be welcoming and safe. Improved security is one area with potential for application of AI & Automation in the future.
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    More data on this theme
    Theme 2: ESG “The ESG agenda as a stimulus for renewal against a backdrop of challenging market fundamentals continues. Whether it be continued evolution in occupier expectations, heightening disclosure requirements or growing transitional risks, the momentum is clear.” Philip Parnell, Partner, Head of Valuation and Real Estate Climate & Sustainability Lead
  • This is the eighth consecutive survey where refurbishments outstrip new builds in new construction activity. This is also the third consecutive survey where refurbishment volumes exceed 2.5 million sq. ft.
  • Developers continue to rate the limits on total Energy Use Intensity (EUI) as the most difficult net zero requirement to implement.
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    Philip Parnell Partner, Head of Valuation and Real Estate Climate & Sustainability Lead +44 (0) 20 7303 3898 pparnell@deloitte.co.uk
    This is the eighth consecutive survey where refurbishments outstrip new builds in new construction activity. This is also the third consecutive survey where refurbishment volumes exceed 2.5 million sq. ft. Central London: Volume of new starts - new build vs refurbishment Source: Deloitte
  • This survey period has seen a decrease in volume of both new builds and refurbishments, recording 1.4 million and 2.8 million sq. ft. respectively. While this is below the record highs of over 3.0 million sq. ft. seen in the last two surveys, refurbishment volumes are materially higher (over 2.5 million sq. ft. for the three most recent surveys) than the levels seen before the Summer 2020 edition. The trend of record-breaking refurbishment levels is unlikely to be sustainable long term.
  • Deep refurbishments can completely redesign the space while retaining the core structure of the building. Thus, new builds are not the only way to deliver the best-in-class office space. There are benefits to refurbishing existing buildings. One of the most important is the reduction of embodied carbon, thereby improving the building’s carbon footprint. Refurbishments also tend to have tighter delivery schedules and lower cost of construction, when compared to new builds of the same scale.
  • This marks the eighth consecutive survey where refurbishments outstrip new builds compared with only twice in the ten surveys before that. The data shows us a meaningful market shift towards refurbishment. This shift has undoubtably been accelerated by the trajectory of MEES regulations and the hybrid working revolution. We anticipate the dominance of refurbishment activity to remain over the coming decade, and likely beyond.
  • This survey period has seen a decrease in volume of both new builds and refurbishments, recording 1.4 million and 2.8 million sq. ft. respectively. While this is below the record highs of over 3.0 million sq. ft. seen in the last two surveys, refurbishment volumes are materially higher (over 2.5 million sq. ft. for the three most recent surveys) than the levels seen before the Summer 2020 edition. The trend of record-breaking refurbishment levels is unlikely to be sustainable long term.
  • Deep refurbishments can completely redesign the space while retaining the core structure of the building. Thus, new builds are not the only way to deliver the best-in-class office space. There are benefits to refurbishing existing buildings. One of the most important is the reduction of embodied carbon, thereby improving the building’s carbon footprint. Refurbishments also tend to have tighter delivery schedules and lower cost of construction, when compared to new builds of the same scale.
  • This marks the eighth consecutive survey where refurbishments outstrip new builds compared with only twice in the ten surveys before that. The data shows us a meaningful market shift towards refurbishment. This shift has undoubtably been accelerated by the trajectory of MEES regulations and the hybrid working revolution. We anticipate the dominance of refurbishment activity to remain over the coming decade, and likely beyond.
    • Developers continue to rate the limits on total Energy Use Intensity (EUI) as the most difficult net zero requirement to implement. Developer survey: How would you rate the difficulty of implementing each of the following ten requirements for a new building to achieve net zero carbon in operation, according to the UK GBC (Green Building Council)? Source: Deloitte Note: Developers were asked to rate on a scale of 1-5 with 1 being the 'Least challenging' and 5 being the 'Most challenging'
  • When considering the UK Green Building Council’s (UK GBC) Ten key requirements for new buildings to achieve net zero, developers were asked to rate the difficulty in implementing each of these. These requirements are applicable for new construction to achieve operational net zero. The ‘cap’, or limit, on total Energy Use Intensity (EUI) was again rated as the most challenging factor, according to developers. EUI is the measure of energy use by the total area of the building.
  • One way to manage a building’s EUI is through the use of ‘smart’ building controls. Such controls can detect movement, temperature and power consumption in real-time. This can drastically reduce a building’s operational EUI. Landlords and occupiers alike can use this data to regulate their energy use, which is a big contributor to reaching net zero. These controls are a possible application of AI & Automation in London office development.
  • We noted that developers ranked many requirements as less challenging than in the previous survey. This may suggest that they are familiarising themselves with, and therefore adapting to, these requirements.
  • When considering the UK Green Building Council’s (UK GBC) Ten key requirements for new buildings to achieve net zero, developers were asked to rate the difficulty in implementing each of these. These requirements are applicable for new construction to achieve operational net zero. The ‘cap’, or limit, on total Energy Use Intensity (EUI) was again rated as the most challenging factor, according to developers. EUI is the measure of energy use by the total area of the building.
  • One way to manage a building’s EUI is through the use of ‘smart’ building controls. Such controls can detect movement, temperature and power consumption in real-time. This can drastically reduce a building’s operational EUI. Landlords and occupiers alike can use this data to regulate their energy use, which is a big contributor to reaching net zero. These controls are a possible application of AI & Automation in London office development.
  • We noted that developers ranked many requirements as less challenging than in the previous survey. This may suggest that they are familiarising themselves with, and therefore adapting to, these requirements.
    • More data on this theme
    Theme 3: Investment “While strong occupational demand for the highest quality space is now well proven, investors are still cautious, particularly on large scale development as the cost of finance continues to hamper viability. We believe that until the long-anticipated rate reductions emerge, the pipeline of large schemes will remain constrained as a result.” Tony McCurley, Senior Advisor, Real Estate
  • As our prior surveys anticipated, 2023 proved to be the ‘year of the catch-up’ by delivering the second highest annual completion volume on record.
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    Tony McCurley Senior Advisor, Real Estate +44 (0) 20 7007 0614 tmccurley@deloitte.co.uk Lauren Raw Assistant Director, Real Estate +44 (0) 20 3741 2131 lraw@deloitte.co.uk
    As our prior surveys anticipated, 2023 proved to be the ‘year of the catch-up’ by delivering the second highest annual completion volume on record. Central London: Future office development pipeline Source: Deloitte
  • In recent surveys, Deloitte had predicted 2023 to be the ‘year of the catch-up’. With a completion volume of 7.5 million sq. ft., 2023 delivered the second highest annual completion volume since 2002.
  • So far in 2024, 1.8 million sq. ft. of office space has been delivered, with a further 6.9 million sq. ft. expected to complete throughout the remainder of the year. Of this space, 2.2 million sq. ft. (32%) has already been let. As we look forward, 8.8 million sq. ft. is now expected to deliver in 2025, of which 39% already has pre-let commitments.
  • Based on developer estimates, the Summer 2023 survey predicted that 8.9 million sq. ft would deliver between April-December last year. Of this, only 5.7 million sq. ft. (c.64%) was completed. This is in line with Deloitte’s view that supply chain issues and other construction delays tend to push completion dates to future survey periods. Factoring in the recent completion rates, Deloitte expects a completion volume between 3.1 million (c.45%) and 5.2 million sq. ft. (c.75%) in the remainder of 2024 to be more reasonable. As such, 2024 is on track to see an annual completion volume between 5.0 and 7.0 million sq. ft.
  • In recent surveys, Deloitte had predicted 2023 to be the ‘year of the catch-up’. With a completion volume of 7.5 million sq. ft., 2023 delivered the second highest annual completion volume since 2002.
  • So far in 2024, 1.8 million sq. ft. of office space has been delivered, with a further 6.9 million sq. ft. expected to complete throughout the remainder of the year. Of this space, 2.2 million sq. ft. (32%) has already been let. As we look forward, 8.8 million sq. ft. is now expected to deliver in 2025, of which 39% already has pre-let commitments.
  • Based on developer estimates, the Summer 2023 survey predicted that 8.9 million sq. ft would deliver between April-December last year. Of this, only 5.7 million sq. ft. (c.64%) was completed. This is in line with Deloitte’s view that supply chain issues and other construction delays tend to push completion dates to future survey periods. Factoring in the recent completion rates, Deloitte expects a completion volume between 3.1 million (c.45%) and 5.2 million sq. ft. (c.75%) in the remainder of 2024 to be more reasonable. As such, 2024 is on track to see an annual completion volume between 5.0 and 7.0 million sq. ft.
    • Developers expect a relatively stable London office development pipeline. Developer survey: Compared with the last six months, how do you expect your pipeline to change in the next six months? Source: Deloitte
  • About half the developers surveyed expect their development pipeline to stay the same within the next six months. Over a third of the developers think their pipeline will increase, indicating a confidence in the market.
  • In previous surveys, we have wondered what will become of the office spaces that face obsolescence. Shravan Joshi, chairman of the City of London Corporation’s Planning and Transportation Committee, recently told Deloitte that the City’s new ‘retrofit fast track’ policy will apply to relevant office buildings where there is a proposed change of use to education, hotel or cultural use. They are lowering the bar on change of use from office to encourage greater retrofit of existing buildings. The new approach won’t apply to offices that play a strategically important role in the City.
  • The reality is that planning is a complex process with no ‘one size fits all’ solution. Time and careful consideration need to be dedicated to granting planning permissions and the influx of planning applications could create a bottleneck effect. We discuss planning related challenges faced by developers in a later section.
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  • About half the developers surveyed expect their development pipeline to stay the same within the next six months. Over a third of the developers think their pipeline will increase, indicating a confidence in the market.
  • In previous surveys, we have wondered what will become of the office spaces that face obsolescence. Shravan Joshi, chairman of the City of London Corporation’s Planning and Transportation Committee, recently told Deloitte that the City’s new ‘retrofit fast track’ policy will apply to relevant office buildings where there is a proposed change of use to education, hotel or cultural use. They are lowering the bar on change of use from office to encourage greater retrofit of existing buildings. The new approach won’t apply to offices that play a strategically important role in the City.
  • The reality is that planning is a complex process with no ‘one size fits all’ solution. Time and careful consideration need to be dedicated to granting planning permissions and the influx of planning applications could create a bottleneck effect. We discuss planning related challenges faced by developers in a later section.
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    More data on this theme
    Theme 4: Cost “The UK base rate has been stable through the survey period and is lower than the average between 1993 and 2008. The forward curve, marking expectations of future rate movements, showed five-year swaps dipped to below 3.5% mid-survey period, at the turn of the year and has since risen to just over 4%. While the cost of finance is fairly normal compared with rates seen in the long run, they do appear high when seen in the context of 2010 to 2021. Many developers are now factoring the new normal rates into their viability calculations as a fact of life, as the alternative of deferring construction will eat into internal rates of return.” Chris Holmes, Partner, Head of Real Estate Debt Advisory
  • ‘Availability of funding’ rises to the top of challenges to construction, alongside ‘Planning issues’ and the ‘Economic environment’. By contrast, ‘Construction costs’ and ‘Confidence in the leasing market’ drop further down the list of developers' concerns.
  • ‘Time taken to complete the planning process’ continues to be an undisputed challenge to construction, according to all developers surveyed.
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    Chris Holmes Partner, Head of Real Estate Debt Advisory +44 (0) 20 7007 2873 cpholmes@deloitte.co.uk Sophie Allan Director, Real Assets Advisory +44 (0) 20 7303 3192 sophieallan@deloitte.co.uk
    ‘Availability of funding’ rises to the top of challenges to construction, alongside ‘Planning issues’ and the ‘Economic environment’. By contrast, ‘Construction costs’ and ‘Confidence in the leasing market’ drop further down the list of developers' concerns. Developer survey: What are the biggest challenges to development today? Source: Deloitte Note: * The 'Supply chain issues' option was introduced in the Summer 2023 survey Note: **Previously listed as 'Brexit' and 'COVID-19', expanded to 'Economic environment' starting Summer 2023 survey to include factors like 'Inflation' and 'Business Confidence'
  • When asked about the leading challenges to construction, all the developers surveyed rated the ‘Economic environment’, ‘Availability of funding’ and ‘Planning issues’ at the top. This was the first time that availability of funding was rated as a leading challenge, with developers listing higher interest rates as the main cause. Economic challenges have meant that funding is now more expensive.
  • The real estate sector has been widely affected by geopolitical headwinds and the economic environment. This has led to high construction costs, expensive delays and increases in pricing which can throw the viability of a project into question. Valuations are consequently being challenged through continued adverse construction costs and timing variances as well as valuation fundamentals impacting exit yield assumptions. The combined result has inevitably led to significant challenges to viability. One developer recently told Deloitte that the dip in the supply chain and pricing confidence at the end of 2023 would have led to a 25% increase in the overall costs for their refurbishment of a Grade II listed building in the West End had they not fixed the construction price at the outset.
  • More positively, the proportion of developers rating ‘Confidence in the leasing market’ as a challenge to construction has almost halved. Where 90% of developers rated it as a challenge in our Winter 2023 survey, only half the respondents rated it as such in the Summer 2024 edition. When asked to elaborate, developers say they are confident about the stability of occupational demand for premium office space in Central London, particularly in the City and West End.
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  • When asked about the leading challenges to construction, all the developers surveyed rated the ‘Economic environment’, ‘Availability of funding’ and ‘Planning issues’ at the top. This was the first time that availability of funding was rated as a leading challenge, with developers listing higher interest rates as the main cause. Economic challenges have meant that funding is now more expensive.
  • The real estate sector has been widely affected by geopolitical headwinds and the economic environment. This has led to high construction costs, expensive delays and increases in pricing which can throw the viability of a project into question. Valuations are consequently being challenged through continued adverse construction costs and timing variances as well as valuation fundamentals impacting exit yield assumptions. The combined result has inevitably led to significant challenges to viability. One developer recently told Deloitte that the dip in the supply chain and pricing confidence at the end of 2023 would have led to a 25% increase in the overall costs for their refurbishment of a Grade II listed building in the West End had they not fixed the construction price at the outset.
  • More positively, the proportion of developers rating ‘Confidence in the leasing market’ as a challenge to construction has almost halved. Where 90% of developers rated it as a challenge in our Winter 2023 survey, only half the respondents rated it as such in the Summer 2024 edition. When asked to elaborate, developers say they are confident about the stability of occupational demand for premium office space in Central London, particularly in the City and West End.
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    ‘Time taken to complete the planning process’ continues to be an undisputed challenge to construction, according to all developers surveyed. Developer survey: What are the biggest challenges to development today? - Planning issues breakdown Source: Deloitte
  • With planning challenges ranking as a leading barrier to construction, we asked developers to elaborate on specific concerns. Once again, all the respondents rated the ‘time to complete the planning process’ as the number one issue. With the added layers of intricacy required by increasingly stringent regulations paired with the sheer volume of applications, local planning authorities are struggling to keep up.
  • These added layers of complexity inadvertently also result in an increase in cost, as well as time, to the developers. Consequently, a greater proportion of developers also rated the ‘complexity of the planning process’ as a challenge when compared to previous surveys. By contrast, a much smaller proportion of developers now listed meeting sustainability or other planning requirements as a challenge.
  • Delays, even minor ones, can have a significant knock-on effect on the rest of the project. With interest rates being so much higher than in the past 15 years, planning delays are costly in themselves. Moreover, the uncertainty around planning makes it difficult for developers to sequence construction effectively, meaning they need to build in financing buffers and contingencies against supply chain disruptions.
  • With planning challenges ranking as a leading barrier to construction, we asked developers to elaborate on specific concerns. Once again, all the respondents rated the ‘time to complete the planning process’ as the number one issue. With the added layers of intricacy required by increasingly stringent regulations paired with the sheer volume of applications, local planning authorities are struggling to keep up.
  • These added layers of complexity inadvertently also result in an increase in cost, as well as time, to the developers. Consequently, a greater proportion of developers also rated the ‘complexity of the planning process’ as a challenge when compared to previous surveys. By contrast, a much smaller proportion of developers now listed meeting sustainability or other planning requirements as a challenge.
  • Delays, even minor ones, can have a significant knock-on effect on the rest of the project. With interest rates being so much higher than in the past 15 years, planning delays are costly in themselves. Moreover, the uncertainty around planning makes it difficult for developers to sequence construction effectively, meaning they need to build in financing buffers and contingencies against supply chain disruptions.
    • CFOs continue to rate ‘geopolitical risks’ as the top risk to their businesses while they rate ‘effects of Brexit/deterioration in UK-EU relations’ at the bottom of the list for the first time on record, according to the Deloitte CFO survey. Deloitte CFO Survey: Risk to business posed by the following factors Source: Deloitte Note: Weighted average ratings on a scale of 0-100 where 0 stands for no risk and 100 stands for the highest possible risk
  • According to Deloitte’s latest CFO Survey, respondents rated ‘geopolitical risks’ as the top risk to their businesses for the seventh time in nine quarters. An overwhelming majority (97%) expect these risks to increase (51%) or stay the same (46%) over the next three years. The impact of the potential escalation of the war in Ukraine, the continued conflict in Gaza and the forthcoming elections on the economy, global trade and supply chains seem to be weighing on their minds. As we saw with the 'mini budget' announced in September 2022, policy decisions can have devastating impacts on business at large, as sterling crashed to its lowest-ever level against the US dollar.
  • When asked to assess the channels through which adverse geopolitical events could damage their own businesses over the next three years, CFOs rated cyber-attacks as their greatest concern. In second and third position, CFOs have rated weaker demand and higher energy prices or reduced energy supply, respectively, in their list of adverse consequences of geopolitical events.
  • Regarding other risks to their businesses, CFOs’ concerns over poor productivity and competitiveness have risen. According to the latest CFO survey, they rank second on the risk list this quarter, with CFOs assigning them the joint-highest risk rating in ten years. On the other hand, concerns over inflation, further rate rises and labour shortages have reduced when compared with preceding editions. Worries over the effects of Brexit or a deterioration in UK-EU relations have fallen to the bottom of the risk list, with CFOs assigning it the lowest risk rating on record.
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  • According to Deloitte’s latest CFO Survey, respondents rated ‘geopolitical risks’ as the top risk to their businesses for the seventh time in nine quarters. An overwhelming majority (97%) expect these risks to increase (51%) or stay the same (46%) over the next three years. The impact of the potential escalation of the war in Ukraine, the continued conflict in Gaza and the forthcoming elections on the economy, global trade and supply chains seem to be weighing on their minds. As we saw with the 'mini budget' announced in September 2022, policy decisions can have devastating impacts on business at large, as sterling crashed to its lowest-ever level against the US dollar.
  • When asked to assess the channels through which adverse geopolitical events could damage their own businesses over the next three years, CFOs rated cyber-attacks as their greatest concern. In second and third position, CFOs have rated weaker demand and higher energy prices or reduced energy supply, respectively, in their list of adverse consequences of geopolitical events.
  • Regarding other risks to their businesses, CFOs’ concerns over poor productivity and competitiveness have risen. According to the latest CFO survey, they rank second on the risk list this quarter, with CFOs assigning them the joint-highest risk rating in ten years. On the other hand, concerns over inflation, further rate rises and labour shortages have reduced when compared with preceding editions. Worries over the effects of Brexit or a deterioration in UK-EU relations have fallen to the bottom of the risk list, with CFOs assigning it the lowest risk rating on record.
    •      The cost of materials and labour are the two primary drivers of price increases over the next 12 months, with the cost of materials taking the lead this survey. CC&WS Survey: If you have expressed a change in your prices over the next 12 months, we would like to understand what has driven this change Source: Deloitte
  • Looking beyond London to the wider construction market, the rate of increase in cost of materials has shown signs of stabilising but continues to have a major impact on pricing. Respondents to our most recent Construction Cost & Workload Sentiment (CC&WS) Survey said that they expect the cost of materials to be the leading driver of increases in pricing in the next 12 months.
  • The wider ESG agenda and occupier demand for premium office space has led to an increase in construction activity. This coupled with Brexit having closed off a ready supply of EU workers has resulted in a tight labour market. This squeeze caused wages to rise and has been a substantial contributor to the increase in costs. Respondents said that they expect labour costs to be the second biggest driver of their price increases in the next 12 months.
  • There are several market risks that can affect construction pricing. Respondents said that lead-in times have increased, which is contributing to the risk in delivery of projects. Fundamentally this is caused by delays at customs. While the time for processing is generally understood and accounted for in construction schedules, the likelihood of goods getting stuck at customs is currently high. Consequently, materials are taking longer to arrive onsite which can have impact on when a building completes and subsequently starts generating revenue. Thus, contractors need to account for the risks of these delays within their pricing.
    •
  • Looking beyond London to the wider construction market, the rate of increase in cost of materials has shown signs of stabilising but continues to have a major impact on pricing. Respondents to our most recent Construction Cost & Workload Sentiment (CC&WS) Survey said that they expect the cost of materials to be the leading driver of increases in pricing in the next 12 months.
  • The wider ESG agenda and occupier demand for premium office space has led to an increase in construction activity. This coupled with Brexit having closed off a ready supply of EU workers has resulted in a tight labour market. This squeeze caused wages to rise and has been a substantial contributor to the increase in costs. Respondents said that they expect labour costs to be the second biggest driver of their price increases in the next 12 months.
  • There are several market risks that can affect construction pricing. Respondents said that lead-in times have increased, which is contributing to the risk in delivery of projects. Fundamentally this is caused by delays at customs. While the time for processing is generally understood and accounted for in construction schedules, the likelihood of goods getting stuck at customs is currently high. Consequently, materials are taking longer to arrive onsite which can have impact on when a building completes and subsequently starts generating revenue. Thus, contractors need to account for the risks of these delays within their pricing.
    •
    Future workload expectations remain steady, in the context of a rise in available market share due to a decrease in competing suppliers. CC&WS Survey: Considering your workload today, how do you think this will differ in 12 months' time? Source: Deloitte
  • Contractor expectations of workload growth remain steady over the next 12 months. It is important to note that this is in the context of decreased competition, with many contractors forced out of business.
  • The ‘Substructure’, ‘Envelope’ and ‘Internal finishes’ trades are especially positive. On average, 55% of the pipeline for the next 12 months has been secured across the trades which is consistent with previous years.
  • There is also an anticipated decrease in workload in demolitions. The expectations are partly driven by the rise of refurbishment works.
  • The market shift to refurbishments is having a notable impact on the expectation of construction workload. Respondents anticipate the London fit-out market to be a major driver for workload demand in the coming years, with several high-profile schemes delivering to the market.
    •
  • Contractor expectations of workload growth remain steady over the next 12 months. It is important to note that this is in the context of decreased competition, with many contractors forced out of business.
  • The ‘Substructure’, ‘Envelope’ and ‘Internal finishes’ trades are especially positive. On average, 55% of the pipeline for the next 12 months has been secured across the trades which is consistent with previous years.
  • There is also an anticipated decrease in workload in demolitions. The expectations are partly driven by the rise of refurbishment works.
  • The market shift to refurbishments is having a notable impact on the expectation of construction workload. Respondents anticipate the London fit-out market to be a major driver for workload demand in the coming years, with several high-profile schemes delivering to the market.
    •
    Prices are expected to continue to increase over the next 12 months, albeit at a slower rate than the previous two years. CC&WS Survey: What is your view as to how your prices will change over the next 12 months? Source: Deloitte
  • Respondents to the CC&WS survey expect prices to continue to rise over the next 12 months, albeit at a slower pace than over the last two years. Pricing has been kept competitive through bulk buying early in the process. Of course, these benefits have their limitations.
  • Contractors are becoming increasingly selective about the work they take on and the clients they work with. They are placing much more emphasis on understanding the risks of a project and managing their profit margins. The ongoing issue of construction market insolvencies only further exacerbates this problem.
  • Value engineering is continually being used to combat rising costs and get projects back to budget. The aim of value engineering is to provide a more cost-efficient solution and eliminate unwanted costs while maintaining the overall function and quality of a building. However, the time and cost of this process is often unaccounted for at the outset.
    •
  • Respondents to the CC&WS survey expect prices to continue to rise over the next 12 months, albeit at a slower pace than over the last two years. Pricing has been kept competitive through bulk buying early in the process. Of course, these benefits have their limitations.
  • Contractors are becoming increasingly selective about the work they take on and the clients they work with. They are placing much more emphasis on understanding the risks of a project and managing their profit margins. The ongoing issue of construction market insolvencies only further exacerbates this problem.
  • Value engineering is continually being used to combat rising costs and get projects back to budget. The aim of value engineering is to provide a more cost-efficient solution and eliminate unwanted costs while maintaining the overall function and quality of a building. However, the time and cost of this process is often unaccounted for at the outset.
    •
    More data on this theme
    Submarket snapshots
    Southbank Southbank office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Midtown Midtown office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    White City White City office pipeline
    Paddington Paddington office pipeline
    King's Cross King's Cross office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Stratford Stratford office pipeline Let vs. available space under construction New-build vs. refurbishment volume under construction
    VNEB VNEB office pipeline Let vs. available space under construction New-build vs. refurbishment volume under construction
    The City The City office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Docklands The Docklands office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    West End West End office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Central London Central London office pipeline Central London: Volume of new starts and completions What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Southbank Southbank office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Midtown Midtown office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    White City White City office pipeline
    Paddington Paddington office pipeline
    King's Cross King's Cross office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Stratford Stratford office pipeline Let vs. available space under construction New-build vs. refurbishment volume under construction
    VNEB VNEB office pipeline Let vs. available space under construction New-build vs. refurbishment volume under construction
    The City The City office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Docklands The Docklands office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    West End West End office pipeline What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
    Central London Central London office pipeline Central London: Volume of new starts and completions What sector is taking the most space? Let vs. available space under construction New-build vs. refurbishment volume under construction
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