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London Office Crane SurveyThe Winter 2024 EditionOptimism returning as headwinds abate
2024 is a challenging year for the London office market. It has had to grapple with continuing geopolitical and economic uncertainty, while contractor insolvencies place additional pressures on an already distressed construction sector. Read full introduction
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2024 is a challenging year for the London office market. It has had to grapple with continuing geopolitical and economic uncertainty, while contractor insolvencies place additional pressures on an already distressed construction sector.In this survey period there were 3.7 million sq. ft. of new starts across 29 office schemes. But these results have largely been boosted by the life science developments in One North Quay and the Tribeca-London scheme. Excluding these developments, this survey recorded a 42% decline in new start volume from the previous survey to 2.4 million sq. ft. However, the recent cut in interest rates by the Bank of England for the first time in four years and continuing easing of construction cost inflation could be the catalyst developers need to start a new scheme.Refurbishment starts dipped significantly in this survey, with volumes 57% lower than the Summer 2024 figures. Despite this drop, refurbishment remains an attractive choice for addressing evolving occupier requirements and targeted ESG credentials. It is also essential to avoid value erosion in offices facing stranding risk. While geopolitics and economic risks may be prompting a pause, our developer survey indicates a positive sentiment that pipelines will continue to be maintained. Low refurbishment starts are therefore likely to be a short-term blip and we expect to see a return to form in the near-to-mid-term.The return of new start activity in the Docklands (One North Quay) and King's Cross (Tribeca-London) is centred around the life science developments mentioned previously. These developments create an opportunity to reinvigorate these submarkets by targeting life science occupiers – such as medical research labs, bioinformatics and medical tech firms.Many such life science schemes are planned across London. Developers have recognised the reasonable ease in varying the specification of office spaces to fit them for laboratory or other life science use. However, with the change in use, the laboratory and other bespoke space is removed from the conventional office market, as it can be occupied only by life science companies. London is a less mature life science market compared to traditional hubs such as Oxford and Cambridge – the other regions of the so-called Golden Triangle that showcases the UK’s strength in science. It certainly remains to be seen whether the supply of bespoke life science schemes will exceed the demand for such space in London.The challenging macro-environment has led to continued unexpected delays. As a result, recent delivery rates range between 45% and 75% of previous estimates. Annual completions in 2024 will likely be less than 6.8 million sq. ft. and we believe that tenant demand will absorb all premium office space coming through the pipeline. We therefore anticipate rental growth will persist.Supply chain issues and other construction delays may continue to affect completion rates. Contractor insolvencies have also impacted the sector, with the latest casualty being ISG’s departure from the market, announced in September 2024. Contractors are telling us that ongoing labour pressures will be a leading driver of price rises over the next 12 months, as they scrutinise their pipeline and the level of risk they take on.Geopolitics are likely to remain a top risk faced by developers and contractors. In Deloitte’s latest UK CFO survey, geopolitical risk was listed as the top risk to business as the fallout from the war in Ukraine persists and tensions rise in the Middle East. Notwithstanding this, CFOs’ confidence in business continues to run at above-average levels. Budding shoots of recovery in the UK economy were also observed in H1 of this year, with GDP growth outstripping every other G7 economy. Further growth is anticipated, albeit at a slower pace than in the first half of the year. With the government changes in the UK and the US, we anticipate a shift in the geopolitical and the macroeconomic environment.We can’t promise smooth sailing, but developers are cautiously optimistic that there are calmer waters ahead. Caroline WaldcockReal Estate Sector Leader, Deloitte UK
Welcome to our London Office Crane Survey Winter 2024 hubHere 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 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.Key findings: Summary
New construction activity in this survey declined by 12% over the previous edition.
Large-scale life science developments make up over a third of the new construction volume and are the sole drivers of new activity in the King’s Cross and Docklands submarkets.
Refurbishment levels fell by 57% this survey. For the first time in 4.5 years, the volume of new build traditional offices marginally exceeded refurbishment. However, overarching developer sentiment towards sustained pipeline growth suggests that this reduction may be a temporary ‘blip’.
Continuing the recent trend of delays capping delivery rates at 75% of estimated completions, this survey records a 72% completion delivery. This in turn, has inflated the ongoing construction volume.
2024 is on track to deliver between 5.9 million sq. ft. to 6.8 million sq. ft. And there is no indication that completions will saturate the market.
Contractor insolvencies are putting further pressure on an already distressed construction sector.
About the survey
About the surveyWhat?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?This survey covers the period from April 2024 to September 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“Positive pipeline sentiment indicates that the current drop in traditional office new start activity is likely a blip caused by economic and geopolitical risks. The challenging macro-environment has led to continued unexpected delays to completion, with over a quarter or more (by volume) of the expected completions being delayed by six months or more each survey. This lengthening of delivery timelines for office space has inflated the ongoing construction volumes to record high levels.” Michelle Kite, Partner, Development & Assurance, Real Assets Advisory
The volume of new starts has dipped by almost 12% this survey period. Over a third of new starts by volume are dedicated life science developments.Central London: Volume (in million sq. ft.) and number of new office construction starts per surveySource: Deloitte
This survey has recorded 3.7 million sq. ft. of new starts across 29 schemes. This represents a 12% decrease when compared to the volume recorded in the previous survey, but it remains above the ten-year average of 3.4 million sq. ft. This includes almost 1.3 million sq. ft. of large-scale life science developments that contain both laboratory and office workspace. Parts of the workspace in these developments are also referred to as lab-enabled office space (defined as office space with the option for laboratory use). Excluding schemes targeting life science occupiers, this survey records 25 office new starts with a total volume of 2.4 million sq. ft., a 42% decline over the Summer 2024 survey.
While this boom in life science development in London is welcome news, it raises the question of why now? Recently the UK has seen an influx of new life science organisations, and this, along with the government investment into medical research, will likely lead to life science occupiers wanting to make moves soon. Currently in London there is a significant excess of potential demand (space required by occupiers) over supply (space that is available and fit for purpose). As a result, some life science occupiers have had to lease offices and then modify them for laboratory use. This creates an opportunity to develop dedicated life science labs in London. Some developers have already converted unoccupied traditional office spaces or approved schemes for large office developments into laboratory workspace to leverage this opportunity.
Notably, the two largest life science developments recorded this survey had obtained planning permissions to develop offices on those sites at the beginning of this decade. Research and development workspace falls into the same use class as office space in UK planning applications – class 'B1' historically and class 'E' at present. As such, developers are able to amend office schemes to life science developments containing both laboratory and office space with minor changes to the building plans. Having said that, we advise caution about this optimism around large-scale development of life science schemes, as there is a risk of supply exceeding the future demand for such space in the London market.
This survey has recorded 3.7 million sq. ft. of new starts across 29 schemes. This represents a 12% decrease when compared to the volume recorded in the previous survey, but it remains above the ten-year average of 3.4 million sq. ft. This includes almost 1.3 million sq. ft. of large-scale life science developments that contain both laboratory and office workspace. Parts of the workspace in these developments are also referred to as lab-enabled office space (defined as office space with the option for laboratory use). Excluding schemes targeting life science occupiers, this survey records 25 office new starts with a total volume of 2.4 million sq. ft., a 42% decline over the Summer 2024 survey.
While this boom in life science development in London is welcome news, it raises the question of why now? Recently the UK has seen an influx of new life science organisations, and this, along with the government investment into medical research, will likely lead to life science occupiers wanting to make moves soon. Currently in London there is a significant excess of potential demand (space required by occupiers) over supply (space that is available and fit for purpose). As a result, some life science occupiers have had to lease offices and then modify them for laboratory use. This creates an opportunity to develop dedicated life science labs in London. Some developers have already converted unoccupied traditional office spaces or approved schemes for large office developments into laboratory workspace to leverage this opportunity.
Notably, the two largest life science developments recorded this survey had obtained planning permissions to develop offices on those sites at the beginning of this decade. Research and development workspace falls into the same use class as office space in UK planning applications – class 'B1' historically and class 'E' at present. As such, developers are able to amend office schemes to life science developments containing both laboratory and office space with minor changes to the building plans. Having said that, we advise caution about this optimism around large-scale development of life science schemes, as there is a risk of supply exceeding the future demand for such space in the London market.
Major life science schemes are the sole contributors to the spike in new construction in both the Docklands and King’s Cross submarkets.Central London: New office construction start volume (in million sq. ft.) per survey by submarketSource: Deloitte
The new 750,000 sq. ft. development at One North Quay in Docklands and the 537,000 sq. ft. three new build starts under the "Tribeca - London" scheme in King's Cross designed as a part of life sciences hubs are the only drivers of the major uptick in new construction activity recorded in both submarkets this survey. The availability of large sites for development and close links to universities and teaching hospitals are fundamental considerations in successfully creating such hubs.
There have been a few cases of high-profile financial tenants moving out of the Docklands, with the latest example being Moody's recent signing of a deal to move its European headquarters out of One Canada Square to 10 Gresham Street (currently under refurbishment) when its lease expires in 2026. The shift towards developing a life science hub in North Quay could offer an opportunity to reinvigorate the Docklands.
New construction fell across the other Central London submarkets, except for the City which saw a 7% uptick, due largely to the commencement of the 655,000 sq. ft. new build at 50 Fenchurch Street which represents 44% of the new start volume in this submarket. Paddington is again the only subsector with no new starts.
The new 750,000 sq. ft. development at One North Quay in Docklands and the 537,000 sq. ft. three new build starts under the "Tribeca - London" scheme in King's Cross designed as a part of life sciences hubs are the only drivers of the major uptick in new construction activity recorded in both submarkets this survey. The availability of large sites for development and close links to universities and teaching hospitals are fundamental considerations in successfully creating such hubs.
There have been a few cases of high-profile financial tenants moving out of the Docklands, with the latest example being Moody's recent signing of a deal to move its European headquarters out of One Canada Square to 10 Gresham Street (currently under refurbishment) when its lease expires in 2026. The shift towards developing a life science hub in North Quay could offer an opportunity to reinvigorate the Docklands.
New construction fell across the other Central London submarkets, except for the City which saw a 7% uptick, due largely to the commencement of the 655,000 sq. ft. new build at 50 Fenchurch Street which represents 44% of the new start volume in this submarket. Paddington is again the only subsector with no new starts.
Only 72% of the expected 3.8 million sq. ft. completed this survey. This aligns within Deloitte’s observation that the recent delivery rates have ranged between 45% and 75% of previous estimates.Central London: Office volume (in million sq. ft.) completed per surveySource: Deloitte
This survey recorded the delivery of 2.8 million sq. ft. of office space across 35 schemes in Central London - 20% less than the 3.5 million sq. ft. that was delivered during the previous survey period. Based on developer estimates, 3.8 million sq. ft. had previously been expected to complete during this survey and 72% of this projected volume was actually realised. This falls within our adjusted prediction that this survey period would deliver less than 2.9 million sq. ft. of completions.
The above prediction was based on our observation that actual completion volumes always fall short of earlier survey projections based on market estimates. There is a lack of stability in the market in terms of delivery schedules of offices under construction. As observed in our previous survey, from Summer 2022 onwards delivery rates have ranged between 45% and 75% of previous estimates. The wide variance in delivery rates is due to the unpredictable completion delays caused by factors such as inflation, supply chain challenges, geopolitical uncertainty, and global conflicts.
During the next survey period, 5.1 million sq. ft. across 56 schemes have been projected to complete, based on the latest estimated completion dates. It is important to note that while this data can give the impression that the next survey will deliver the second highest completion volume on record, the reality is that when we factor in the delivery rates currently being achieved, the actual delivery will likely range between 2.3 million sq. ft. and 3.8 million sq. ft.
This survey recorded the delivery of 2.8 million sq. ft. of office space across 35 schemes in Central London - 20% less than the 3.5 million sq. ft. that was delivered during the previous survey period. Based on developer estimates, 3.8 million sq. ft. had previously been expected to complete during this survey and 72% of this projected volume was actually realised. This falls within our adjusted prediction that this survey period would deliver less than 2.9 million sq. ft. of completions.
The above prediction was based on our observation that actual completion volumes always fall short of earlier survey projections based on market estimates. There is a lack of stability in the market in terms of delivery schedules of offices under construction. As observed in our previous survey, from Summer 2022 onwards delivery rates have ranged between 45% and 75% of previous estimates. The wide variance in delivery rates is due to the unpredictable completion delays caused by factors such as inflation, supply chain challenges, geopolitical uncertainty, and global conflicts.
During the next survey period, 5.1 million sq. ft. across 56 schemes have been projected to complete, based on the latest estimated completion dates. It is important to note that while this data can give the impression that the next survey will deliver the second highest completion volume on record, the reality is that when we factor in the delivery rates currently being achieved, the actual delivery will likely range between 2.3 million sq. ft. and 3.8 million sq. ft.
Completion delays inflate ongoing construction volumes.Central London: Office volume (in million sq. ft.) under construction per surveySource: Deloitte
The chart above shows the total volume of active office developments in Central London at the end of each survey period. A rise in the total "under construction" volume can be driven either by a rise in new start activity or by a fall in completions. Despite a decline in new start volume this survey, delayed completions have led to the total volume under construction continuing to trend upwards - driven by unfinished construction carried over from previous surveys.
Schemes facing delays tend to inflate the ongoing construction volume by remaining active longer than initially expected. An example of this is the KGX1 scheme in King's Cross. This 870,000 sq. ft. development was first recorded in our Summer 2018 survey and was initially expected to deliver by Q4 2021. Yet because of delays starting from the COVID-19 lockdowns, it remains under construction as at the end of this survey period.
We have also seen a high volume of main contractor and subcontractor insolvencies, which is putting pressure on developments to complete on schedule. Core 5's market update indicates that construction insolvencies were 37.7% above pre-pandemic levels. Some contractors have now taken a conscious decision to down-scale and step away from big projects when they feel that they cannot deliver them at the price developers are looking for. This leads to further delays in project completions, which in turn impacts developers' confidence and decisions to commence new schemes. Developers appear to be concerned about the availability and quality of contractors which is adding to mounting concerns about the viability of schemes.
The chart above shows the total volume of active office developments in Central London at the end of each survey period. A rise in the total "under construction" volume can be driven either by a rise in new start activity or by a fall in completions. Despite a decline in new start volume this survey, delayed completions have led to the total volume under construction continuing to trend upwards - driven by unfinished construction carried over from previous surveys.
Schemes facing delays tend to inflate the ongoing construction volume by remaining active longer than initially expected. An example of this is the KGX1 scheme in King's Cross. This 870,000 sq. ft. development was first recorded in our Summer 2018 survey and was initially expected to deliver by Q4 2021. Yet because of delays starting from the COVID-19 lockdowns, it remains under construction as at the end of this survey period.
We have also seen a high volume of main contractor and subcontractor insolvencies, which is putting pressure on developments to complete on schedule. Core 5's market update indicates that construction insolvencies were 37.7% above pre-pandemic levels. Some contractors have now taken a conscious decision to down-scale and step away from big projects when they feel that they cannot deliver them at the price developers are looking for. This leads to further delays in project completions, which in turn impacts developers' confidence and decisions to commence new schemes. Developers appear to be concerned about the availability and quality of contractors which is adding to mounting concerns about the viability of schemes.
Developer optimism in the leasing market has stabilised but remains positive.Developer survey | Compared with six months ago, how do you currently perceive the leasing market?
Source: Deloitte
Developer optimism in the leasing market has stabilised following the extremely positive sentiment towards leasing in Summer 2024. Developers continue to show an appetite for leasing, particularly for premium space, with a third of developers perceiving the leasing market to be as good as it was six months ago and a further half seeing it as better.
Leasing activity got off to a soft start in 2024, but both Q2 and Q3 saw increases in take-up activity, leading to a total of 7.1 million sq. ft. being leased over the first three quarters. The data indicates occupier confidence across all of Central London, but particularly in its most established submarkets.
The uncertainty with regard to the exact delivery schedules of new offices has led to a slow supply of quality completed office accommodation coming to the market. This, along with their evolving requirements, means that occupiers seeking large scale moves need to plan earlier than ever before.
Developer optimism in the leasing market has stabilised following the extremely positive sentiment towards leasing in Summer 2024. Developers continue to show an appetite for leasing, particularly for premium space, with a third of developers perceiving the leasing market to be as good as it was six months ago and a further half seeing it as better.
Leasing activity got off to a soft start in 2024, but both Q2 and Q3 saw increases in take-up activity, leading to a total of 7.1 million sq. ft. being leased over the first three quarters. The data indicates occupier confidence across all of Central London, but particularly in its most established submarkets.
The uncertainty with regard to the exact delivery schedules of new offices has led to a slow supply of quality completed office accommodation coming to the market. This, along with their evolving requirements, means that occupiers seeking large scale moves need to plan earlier than ever before.
The Financial sector continues to lead the share of pre-completion lettings.Central London: Percentage of pre-completion lettings by sectorSource: Deloitte
As of 30 September 2024, 6.2 million sq. ft. - 37% of the total volume under construction in Central London - has already been let. The Financial sector has been the most active occupier, accounting for 44% of this pre-let volume. This is in line with the upward curve in the Financial sector's share of pre-completion lettings since the Winter 2022 survey. On the other hand, the decline continues in large new Technology, Media and Telecommunications (TMT) pre-lets.
This survey period recorded three large (over 100,000 sq. ft.) financial pre-lets in the schemes currently under construction: Citadel has committed to 250,000 sq. ft. at 2 Finsbury Avenue, Legal & General has leased 60% (190,000 sq. ft.) of Woolgate at 25 Basinghall Street and Evercore has signed for 135,000 sq. ft. in 105 Victoria Street. At the same time, there have been no new pre-completion lettings this survey to TMT occupiers. This is in line with the trend discussed in our previous survey.
The current demand from the life science sector exceeds 750,000 sq. ft., according to a report by Knight Frank. This survey period has seen works on two life sciences hubs starting and some instances of existing buildings being altered by developers for life science use - such as British Land's modification of 1 Triton Square into a purpose-built science and technology hub. While the potential growth of this sector in London could encourage the belief that this is the best time to build new life science facilities or convert stranded offices to life science developments, there is a risk that such schemes could be in the wrong location to attract tenants in this sector.
As of 30 September 2024, 6.2 million sq. ft. - 37% of the total volume under construction in Central London - has already been let. The Financial sector has been the most active occupier, accounting for 44% of this pre-let volume. This is in line with the upward curve in the Financial sector's share of pre-completion lettings since the Winter 2022 survey. On the other hand, the decline continues in large new Technology, Media and Telecommunications (TMT) pre-lets.
This survey period recorded three large (over 100,000 sq. ft.) financial pre-lets in the schemes currently under construction: Citadel has committed to 250,000 sq. ft. at 2 Finsbury Avenue, Legal & General has leased 60% (190,000 sq. ft.) of Woolgate at 25 Basinghall Street and Evercore has signed for 135,000 sq. ft. in 105 Victoria Street. At the same time, there have been no new pre-completion lettings this survey to TMT occupiers. This is in line with the trend discussed in our previous survey.
The current demand from the life science sector exceeds 750,000 sq. ft., according to a report by Knight Frank. This survey period has seen works on two life sciences hubs starting and some instances of existing buildings being altered by developers for life science use - such as British Land's modification of 1 Triton Square into a purpose-built science and technology hub. While the potential growth of this sector in London could encourage the belief that this is the best time to build new life science facilities or convert stranded offices to life science developments, there is a risk that such schemes could be in the wrong location to attract tenants in this sector.
Almost two-thirds of the developers surveyed plan to invest in AI & Automation in their London developments.
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
We asked developers about their plans to incorporate AI & Automation into their developments. About two-thirds of the developers we spoke to are prepared to embrace technological advancements but the remaining third are biding their time before making financial commitments. Developers who felt positively about incorporating AI & Automation into their schemes said that they intend to make "a little" (33%), "moderate" (25%) or "significant" (8%) investments in this area.
Most of the developers we spoke to expect that they will use AI & Automation for tracking ESG metrics, gathering relevant data and overall tech enabling - essentially using modern technology to boost productivity, efficiency and collaboration in the workplace. They therefore aim to use this to support reporting on sustainability and net zero-related targets and to create an elevated and seamless employee experience. Hybrid working, which has been in place since the COVID-19 lockdowns, means that there is pressure on both office developers and organisation leaders to create a safe environment for staff when they do come to the office. Some developers also aim to use AI & Automation to improve security measures in their buildings.
With proper planning and implementation, AI & Automation can go a long way towards elevating the employee experience. It is crucially important to choose the right tech partner, to help advise on the possibilities, plan the rollout and implement it effectively end-to-end.
We asked developers about their plans to incorporate AI & Automation into their developments. About two-thirds of the developers we spoke to are prepared to embrace technological advancements but the remaining third are biding their time before making financial commitments. Developers who felt positively about incorporating AI & Automation into their schemes said that they intend to make "a little" (33%), "moderate" (25%) or "significant" (8%) investments in this area.
Most of the developers we spoke to expect that they will use AI & Automation for tracking ESG metrics, gathering relevant data and overall tech enabling - essentially using modern technology to boost productivity, efficiency and collaboration in the workplace. They therefore aim to use this to support reporting on sustainability and net zero-related targets and to create an elevated and seamless employee experience. Hybrid working, which has been in place since the COVID-19 lockdowns, means that there is pressure on both office developers and organisation leaders to create a safe environment for staff when they do come to the office. Some developers also aim to use AI & Automation to improve security measures in their buildings.
With proper planning and implementation, AI & Automation can go a long way towards elevating the employee experience. It is crucially important to choose the right tech partner, to help advise on the possibilities, plan the rollout and implement it effectively end-to-end.
More data on this theme
Theme 2: Investment“With the UK Budget now announced and a more favourable interest rate environment anticipated in the short term, we are seeing an increase in investor appetite for London assets from our clients after a long period of very low transaction volumes and relative inactivity in the investment market. We thus anticipate improving levels of transaction activity in the next six months.” Tony McCurley, Senior Advisor, Real EstateWith 2024 on track to deliver between 5.9 million sq. ft. and 6.8 million sq. ft., there is no indication that high levels of completions will saturate the market.Central London: Future office development forecast pipeline
Source: Deloitte
Completions this year fell short of the Summer 2024 survey projections, with 4.6 million sq. ft. completed over the first three quarters compared to a forecast of 5.6 million sq. ft. Annual completions for 2024 are now anticipated to reach 7.5 million sq. ft., down from the 8.7 million sq. ft. projected in the Summer 2024 survey. According to the latest market estimated completion dates, 2025 and 2026 are predicted to deliver 8.9 million sq. ft. and 6.9 million sq. ft. respectively. Life science developments represent 1.3 million sq. ft. of the estimates for 2026, and only 5.6 million sq. ft. of traditional office space is projected to complete in that year.
Comparing the forecast pipelines across our surveys over time, we can see that actual deliveries always fall short of previously projected completions as inevitably some schemes encounter delays for a variety of reasons. As a result, the incomplete volumes spill over into subsequent years, which in turn elevates the estimated completion volumes for the following year. The chart above may give the impression that an influx of supply is due to impact the market imminently. However, experience has shown that these inflated completion volumes do not deliver in their entirety over that year.
As previously mentioned, the actual rate of completions in recent years has ranged between 45% and 75% of forecasts. The remainder of 2024 is therefore likely to deliver between 1.3 million sq. ft. and 2.2 million sq. ft. of office space. Deloitte predicts that 2024 will record an annual completion volume between 5.9 million sq. ft. and 6.8 million sq. ft., and if this trend continues next year, then 2025 will likely deliver between 4.3 million sq. ft. and 6.9 million sq. ft. of completed office space. Our view is that tenant demand will absorb all premium space coming through the pipeline, and so we expect that rental growth will continue. There are some concerns that rents may slip back after 2028 if they reach excessive levels and demand lessens due to affordability. However, high construction costs mean that "tenants will have to pay if they want the space built."
Completions this year fell short of the Summer 2024 survey projections, with 4.6 million sq. ft. completed over the first three quarters compared to a forecast of 5.6 million sq. ft. Annual completions for 2024 are now anticipated to reach 7.5 million sq. ft., down from the 8.7 million sq. ft. projected in the Summer 2024 survey. According to the latest market estimated completion dates, 2025 and 2026 are predicted to deliver 8.9 million sq. ft. and 6.9 million sq. ft. respectively. Life science developments represent 1.3 million sq. ft. of the estimates for 2026, and only 5.6 million sq. ft. of traditional office space is projected to complete in that year.
Comparing the forecast pipelines across our surveys over time, we can see that actual deliveries always fall short of previously projected completions as inevitably some schemes encounter delays for a variety of reasons. As a result, the incomplete volumes spill over into subsequent years, which in turn elevates the estimated completion volumes for the following year. The chart above may give the impression that an influx of supply is due to impact the market imminently. However, experience has shown that these inflated completion volumes do not deliver in their entirety over that year.
As previously mentioned, the actual rate of completions in recent years has ranged between 45% and 75% of forecasts. The remainder of 2024 is therefore likely to deliver between 1.3 million sq. ft. and 2.2 million sq. ft. of office space. Deloitte predicts that 2024 will record an annual completion volume between 5.9 million sq. ft. and 6.8 million sq. ft., and if this trend continues next year, then 2025 will likely deliver between 4.3 million sq. ft. and 6.9 million sq. ft. of completed office space. Our view is that tenant demand will absorb all premium space coming through the pipeline, and so we expect that rental growth will continue. There are some concerns that rents may slip back after 2028 if they reach excessive levels and demand lessens due to affordability. However, high construction costs mean that "tenants will have to pay if they want the space built."
Developers are more optimistic about the future of the 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
We asked developers about their future pipeline and how they expect it to change in the next six months. The proportion of developers expecting a reduction in their pipeline is markedly less than two years ago. This combined, with a greater proportion expecting a growth in their pipeline, suggests that an increase in the rate of renewal is anticipated.
While geopolitical uncertainty has been a prominent feature of 2024 and, according to our latest CFO survey, remains the top risk for UK businesses, the economic headwinds that have weighed on sentiment over recent years have begun to ease. Economic growth picked up in the first half of the year, inflation continued to fall, and the Bank of England started to cut interest rates, which has led to cautious optimism amongst developers.
The recent Budget, delivered by Chancellor Rachel Reeves on October 30th, outlined a number of measures which could also impact developer confidence. The national minimum wage is set to rise by 6.7% from April 2025 and employers' National Insurance contributions are also set to increase by 1.2 percentage points. Overall increases in operating expenses could further exacerbate problems with availability of capital, which could affect future London office pipeline sentiment. The pipeline may also be impacted by the increasing incidence of insolvencies in the construction market. So, the question is: "Will developers be able to remain optimistic as these changes take effect?"
We asked developers about their future pipeline and how they expect it to change in the next six months. The proportion of developers expecting a reduction in their pipeline is markedly less than two years ago. This combined, with a greater proportion expecting a growth in their pipeline, suggests that an increase in the rate of renewal is anticipated.
While geopolitical uncertainty has been a prominent feature of 2024 and, according to our latest CFO survey, remains the top risk for UK businesses, the economic headwinds that have weighed on sentiment over recent years have begun to ease. Economic growth picked up in the first half of the year, inflation continued to fall, and the Bank of England started to cut interest rates, which has led to cautious optimism amongst developers.
The recent Budget, delivered by Chancellor Rachel Reeves on October 30th, outlined a number of measures which could also impact developer confidence. The national minimum wage is set to rise by 6.7% from April 2025 and employers' National Insurance contributions are also set to increase by 1.2 percentage points. Overall increases in operating expenses could further exacerbate problems with availability of capital, which could affect future London office pipeline sentiment. The pipeline may also be impacted by the increasing incidence of insolvencies in the construction market. So, the question is: "Will developers be able to remain optimistic as these changes take effect?"
More data on this theme
Theme 3: ESG“Refurbishment levels have pared back markedly this survey. Nonetheless developers' appetite to maintain their pipeline of activity coupled with continued ESG related pressures for renewal suggest this could be a blip rather than a trend; a reaction to the political, geopolitical and global conflict concerns prevailing during the survey period. Time will tell.” Philip Parnell, Partner, Head of Valuation and Real Estate Climate & Sustainability Lead
Refurbishment levels fell by 57% this survey. For the first time in four-and-a-half years, volumes of new build traditional offices marginally exceed those of refurbishment.Central London: Volume and number of new starts -new build vs refurbishmentSource: DeloitteNote: For the first time on record, the Winter 2024 survey includes large-scale new build life science developments (almost 1.3 million sq. ft.) that contain both laboratory and office workspace. Parts of the workspace in these developments are also referred to as lab-enabled office space (defined as office space with the option for laboratory use).
This survey period records the start of 1.2 million sq. ft. across 18 refurbishment schemes, which represents a 57% decrease compared to the volume recorded in our previous survey. At first glance, new build start volumes significantly exceed refurbishments, with 2.6 million sq. ft. starting across 11 new build schemes; but this figure includes four new build life science buildings totalling 1.3 million sq. ft. Looking only at traditional office space, new build start volumes only marginally exceed those of refurbishment, with 1.25 million sq. ft. starting across seven schemes. Traditional office new build starts have decreased by 13% compared to the previous survey. This dip in new start activity could be attributable to a combination of economic, political and geopolitical uncertainty. However, our developer survey indicates that there remains an overarching sentiment towards sustained pipeline growth, suggesting that this current reduction may well be just a temporary "blip".
While it is not surprising to see the levels of refurbishment activity somewhat lower than those seen over the past three surveys, we anticipate an uptick once again in the near-to-medium term, as the need continues to address evolving occupier requirements and ESG credentials. In previous surveys, we have discussed the elevated stranding risks that many offices face due to the signalled tightening of the Minimum Energy Efficiency Standards (MEES) and how, without refurbishment, the risk of value erosion intensifies.
There are several factors impacting decisions by developers to commence construction on schemes. We have observed that ongoing delays and bottlenecks created by construction company insolvencies have been hindering project completions. This in turn means that developers are having to wait longer to see a return on their investment. Inflation rates have continued to fall and the Bank of England has started to cut interest rates for the first time in four years. This will help improve project viability, but the financial position continues to be tempered by political and geopolitical challenges. All this has led to a sense of cautious optimism in the London office market.
This survey period records the start of 1.2 million sq. ft. across 18 refurbishment schemes, which represents a 57% decrease compared to the volume recorded in our previous survey. At first glance, new build start volumes significantly exceed refurbishments, with 2.6 million sq. ft. starting across 11 new build schemes; but this figure includes four new build life science buildings totalling 1.3 million sq. ft. Looking only at traditional office space, new build start volumes only marginally exceed those of refurbishment, with 1.25 million sq. ft. starting across seven schemes. Traditional office new build starts have decreased by 13% compared to the previous survey. This dip in new start activity could be attributable to a combination of economic, political and geopolitical uncertainty. However, our developer survey indicates that there remains an overarching sentiment towards sustained pipeline growth, suggesting that this current reduction may well be just a temporary "blip".
While it is not surprising to see the levels of refurbishment activity somewhat lower than those seen over the past three surveys, we anticipate an uptick once again in the near-to-medium term, as the need continues to address evolving occupier requirements and ESG credentials. In previous surveys, we have discussed the elevated stranding risks that many offices face due to the signalled tightening of the Minimum Energy Efficiency Standards (MEES) and how, without refurbishment, the risk of value erosion intensifies.
There are several factors impacting decisions by developers to commence construction on schemes. We have observed that ongoing delays and bottlenecks created by construction company insolvencies have been hindering project completions. This in turn means that developers are having to wait longer to see a return on their investment. Inflation rates have continued to fall and the Bank of England has started to cut interest rates for the first time in four years. This will help improve project viability, but the financial position continues to be tempered by political and geopolitical challenges. All this has led to a sense of cautious optimism in the London office market.
Landlords believe they are stronger advocates than tenants for green lease clauses.Developer survey: Green lease clauses are becoming more widely accepted and adopted. What are your experiences/perceptions in terms of appetite for adoption?
Average appetite ratingSource: DeloitteNote: Developers were asked to rate their experience/perception of adopting Green Lease clauses based on their (ie. Landlord) and Tenant appetite on a scale of 0-100. where 0 reflects 'no appetite', 33 reflects appetite for 'light green' clauses, 66 for 'medium green' clauses and 100 for 'dark green' clauses.
We spoke to developers about their own appetite and their perception of tenants' appetite for green lease clauses. Not surprisingly perhaps, they feel they are leading the way (with a desire to adopt medium green to dark green clauses) with tenants a step behind (light green to medium green). Whether it be landlord- or tenant-led, familiarity with and acceptance of green lease clauses does appear to be gaining traction, the catalyst being the rapid escalation in both mandatory and voluntary performance disclosures and reporting that require ever greater transparency.
According to the Better Building Partnership (BBP) website: Light green clauses are defined as simple agreements to cooperate without legal obligation to improve economic performance and social impact. Medium green clauses come with stronger obligations to cooperate, but taking into account any unreasonable economic burden or measures which are contrary to business interests. Dark green clauses include an obligation to cooperate with a view to achieving individually specified reductions in greenhouse gas emissions, cooperate to implement strategies and a mutual obligation to consider and respond to each other's (landlord and tenant) proposals.
Green lease clauses are not new but are arguably coming of age. What were once seen as additional and/or onerous obligations are now increasingly seen as both an extension of a building's physical sustainability credentials and also supporting adherence to ever-evolving reporting obligations.
We spoke to developers about their own appetite and their perception of tenants' appetite for green lease clauses. Not surprisingly perhaps, they feel they are leading the way (with a desire to adopt medium green to dark green clauses) with tenants a step behind (light green to medium green). Whether it be landlord- or tenant-led, familiarity with and acceptance of green lease clauses does appear to be gaining traction, the catalyst being the rapid escalation in both mandatory and voluntary performance disclosures and reporting that require ever greater transparency.
According to the Better Building Partnership (BBP) website: Light green clauses are defined as simple agreements to cooperate without legal obligation to improve economic performance and social impact. Medium green clauses come with stronger obligations to cooperate, but taking into account any unreasonable economic burden or measures which are contrary to business interests. Dark green clauses include an obligation to cooperate with a view to achieving individually specified reductions in greenhouse gas emissions, cooperate to implement strategies and a mutual obligation to consider and respond to each other's (landlord and tenant) proposals.
Green lease clauses are not new but are arguably coming of age. What were once seen as additional and/or onerous obligations are now increasingly seen as both an extension of a building's physical sustainability credentials and also supporting adherence to ever-evolving reporting obligations.
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Theme 4: Cost“Development feasibility remains very sensitive to construction costs and the inflationary impact over long programmes. Subcontractors are quoting competitively on new tenders and forward supply purchasing is critical. With base rates reducing and forward curves indicating a stable rates outlook, the cost of borrowing is of less overall concern, and availability of development funding remains good for the strongest developments, including speculative schemes.” Chris Holmes, Partner, Head of Real Estate Debt AdvisoryDevelopers rate ‘Construction costs’ and ‘Planning issues’ as leading challenges to development.Developer survey: What are the biggest challenges to development today?Source: DeloitteNote: * The 'Supply chain issues' option was introduced in the Summer 2023 survey
For the third survey in succession, developers listed "Planning issues" as a leading challenge to development. This survey also saw "Construction costs" rising as a top challenge, while "Supply chain issues" and the "Economic environment" dropped down the list of concerns, perhaps reflecting the improving macroeconomic environment, and possibly a reduction in domestic political uncertainty following Labour's landslide election victory in July.
Despite rises in the overall costs of construction easing and the pricing sentiment survey indicating that cost inflation will ease further back towards normal levels in the near future, "Construction costs" are still rated as a major challenge. The insolvencies among large construction companies have a knock-on effect on pricing. Construction companies must learn to deal with ever-evolving best practices and changing regulations. As a result, we may see pressure on cost budgets for office development. The recently announced increases of 6.7% in the national minimum wage and 1.2 percentage points in employers' National Insurance contributions will undoubtedly in due course impact developers and the overall cost of construction.
After the financial crisis in 2007 and 2008, contractors were bidding at a loss just to get work on their books. Now there is a much more comprehensive understanding around risk models and a realisation that you can't take on everything, particularly with the additional pressure of the increasing number of insolvencies in the industry. Contractors are being picky. Costs remain high, and with the severe labour shortages, it is very much a contractor's market.
For the third survey in succession, developers listed "Planning issues" as a leading challenge to development. This survey also saw "Construction costs" rising as a top challenge, while "Supply chain issues" and the "Economic environment" dropped down the list of concerns, perhaps reflecting the improving macroeconomic environment, and possibly a reduction in domestic political uncertainty following Labour's landslide election victory in July.
Despite rises in the overall costs of construction easing and the pricing sentiment survey indicating that cost inflation will ease further back towards normal levels in the near future, "Construction costs" are still rated as a major challenge. The insolvencies among large construction companies have a knock-on effect on pricing. Construction companies must learn to deal with ever-evolving best practices and changing regulations. As a result, we may see pressure on cost budgets for office development. The recently announced increases of 6.7% in the national minimum wage and 1.2 percentage points in employers' National Insurance contributions will undoubtedly in due course impact developers and the overall cost of construction.
After the financial crisis in 2007 and 2008, contractors were bidding at a loss just to get work on their books. Now there is a much more comprehensive understanding around risk models and a realisation that you can't take on everything, particularly with the additional pressure of the increasing number of insolvencies in the industry. Contractors are being picky. Costs remain high, and with the severe labour shortages, it is very much a contractor's market.
‘Difficulty in meeting planning requirements’ and ‘Cost of the planning process’ are putting greater pressure on project viability.Developer survey: What are the biggest challenges todevelopment today? - Planning issues breakdownSource: Deloitte
'Planning issues' remain a universal challenge to developers. Notably, a greater proportion of developers highlighted the "Difficulty in meeting planning requirements" as a challenge, when compared to the previous survey. Usually, where planning difficulties exist, higher costs often follow, as can be seen by the increase in respondents indicating 'Cost of planning process' as a challenge.
Developers felt that the 'Time it takes to complete the planning process' and the 'Complexity of the planning process' were less challenging than previously. They commented that since these issues have been a persistent challenge for some time, they are now factored into risk models and wider project considerations.
The government has shown an intent to reform the planning system, as set out in Rachel Reeves' first speech as Chancellor on 8 July 2024. We have since had consultations on the revised National Planning Policy Framework, planning application fees and brownfield passports. While the proposed increase in planning resources is welcome news, will 300 more planning officers really have a meaningful impact, when there are 317 local authorities in England alone? There is hope among developers for a more streamlined London Plan when this is consulted on next year.
'Planning issues' remain a universal challenge to developers. Notably, a greater proportion of developers highlighted the "Difficulty in meeting planning requirements" as a challenge, when compared to the previous survey. Usually, where planning difficulties exist, higher costs often follow, as can be seen by the increase in respondents indicating 'Cost of planning process' as a challenge.
Developers felt that the 'Time it takes to complete the planning process' and the 'Complexity of the planning process' were less challenging than previously. They commented that since these issues have been a persistent challenge for some time, they are now factored into risk models and wider project considerations.
The government has shown an intent to reform the planning system, as set out in Rachel Reeves' first speech as Chancellor on 8 July 2024. We have since had consultations on the revised National Planning Policy Framework, planning application fees and brownfield passports. While the proposed increase in planning resources is welcome news, will 300 more planning officers really have a meaningful impact, when there are 317 local authorities in England alone? There is hope among developers for a more streamlined London Plan when this is consulted on next year.
CFOs continue to rate geopolitical risks as the top risk to their businesses, yet remain relatively sanguine about the risks around energy, according to the Deloitte CFO survey.Deloitte CFO Survey: Risk to business posed by the following factorsSource: DeloitteNote: 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 Q3 2024 CFO Survey, for the fifth quarter in succession, respondents rated geopolitical risks as the single largest source of external risk to their businesses. The survey coincided with a period of escalating tensions in the Middle East. Although geopolitical risk has retained its place as one of the top risks to business since the invasion of Ukraine in 2022, its consequent impact on energy prices and the economy have lessened as western economies have reduced their dependence on Russian gas. The decline in oil prices between July 2024 and late September 2024 have further eased concerns.
Most forecasters predict a soft landing for the US economy. However, three short-lived global selloffs, in April, August, and September 2024, driven partly by worries over US growth, brought into focus the risk of a hard landing for financial markets and businesses across the globe. As a result, CFO concerns about weakness in the US economy have risen to their highest level in over four years. They are joint second in the list of concerns above, tied with CFOs' persistent worries over poor productivity and weak competitiveness in the UK economy. Concerns over emerging market growth have also risen due to the continuing weakness in Chinese consumer demand, although CFOs rate this as a relatively minor threat.
UK CFOs report that credit has become more available and cheaper in the past year. Following the Bank of England's first interest rate cut in over four years in July 2024, CFOs expect rates to be cut further by 100bp to 4.0% over the next 12 months. They report a continued slowing in annual wage growth in their businesses - from 4.9% to 4.6% in the third quarter edition of the CFO survey. They also expect a further slowdown, with average wages growing at 3.2% over the next 12 months.
According to Deloitte's Q3 2024 CFO Survey, for the fifth quarter in succession, respondents rated geopolitical risks as the single largest source of external risk to their businesses. The survey coincided with a period of escalating tensions in the Middle East. Although geopolitical risk has retained its place as one of the top risks to business since the invasion of Ukraine in 2022, its consequent impact on energy prices and the economy have lessened as western economies have reduced their dependence on Russian gas. The decline in oil prices between July 2024 and late September 2024 have further eased concerns.
Most forecasters predict a soft landing for the US economy. However, three short-lived global selloffs, in April, August, and September 2024, driven partly by worries over US growth, brought into focus the risk of a hard landing for financial markets and businesses across the globe. As a result, CFO concerns about weakness in the US economy have risen to their highest level in over four years. They are joint second in the list of concerns above, tied with CFOs' persistent worries over poor productivity and weak competitiveness in the UK economy. Concerns over emerging market growth have also risen due to the continuing weakness in Chinese consumer demand, although CFOs rate this as a relatively minor threat.
UK CFOs report that credit has become more available and cheaper in the past year. Following the Bank of England's first interest rate cut in over four years in July 2024, CFOs expect rates to be cut further by 100bp to 4.0% over the next 12 months. They report a continued slowing in annual wage growth in their businesses - from 4.9% to 4.6% in the third quarter edition of the CFO survey. They also expect a further slowdown, with average wages growing at 3.2% over the next 12 months.
Expectations of higher workload growth in early stages of construction suggest that we are at the beginning of a development cycle.CC&WS survey: Considering your workload today, how do you think this will differ in 12 months' time?
Source: Deloitte
The data from the latest Construction Cost and Workload Sentiment (CC&WS) survey shows expectations of higher workload growth across the early stages of development, with 'Demolition,' 'Substructure' and 'Superstructure' all indicating an increase over the next year. In contrast, expectations for growth in finishing works, such as 'Internal finishes' and 'Services,' have cooled. 'External works' was the only workload to experience a decline in expectations over the next 12 months. This could indicate that we are at the beginning of a construction cycle and that these expectations may change over time, depending on where the cycle has reached.
In response to the Grenfell Tower disaster in 2017 and the Dagenham fire in August 2024, there has been a change in fire protection legislation. This is likely to lead in future to an increase in fire protection works. It could become particularly important with regard to high-rise residential schemes, which are coming under pressure with the introduction of the October 2023 Building Safety Act.
Contractors are anticipating a growth in workload through an increased demand in the market, which will become relevant over coming years. With the increased level of insolvencies reducing the number of suppliers, there is now a larger proportion of the market to bid for. The current pipeline of work secured by contractors for the next 12 months is approximately 50%, a proportion that is consistent with recent surveys.
The data from the latest Construction Cost and Workload Sentiment (CC&WS) survey shows expectations of higher workload growth across the early stages of development, with 'Demolition,' 'Substructure' and 'Superstructure' all indicating an increase over the next year. In contrast, expectations for growth in finishing works, such as 'Internal finishes' and 'Services,' have cooled. 'External works' was the only workload to experience a decline in expectations over the next 12 months. This could indicate that we are at the beginning of a construction cycle and that these expectations may change over time, depending on where the cycle has reached.
In response to the Grenfell Tower disaster in 2017 and the Dagenham fire in August 2024, there has been a change in fire protection legislation. This is likely to lead in future to an increase in fire protection works. It could become particularly important with regard to high-rise residential schemes, which are coming under pressure with the introduction of the October 2023 Building Safety Act.
Contractors are anticipating a growth in workload through an increased demand in the market, which will become relevant over coming years. With the increased level of insolvencies reducing the number of suppliers, there is now a larger proportion of the market to bid for. The current pipeline of work secured by contractors for the next 12 months is approximately 50%, a proportion that is consistent with recent surveys.
Contractors indicate a steady rise in pricing expectations over the next 12 months.CC&WS survey: What is your view as to how your prices will change over the next 12 months?Source: Deloitte
When considering pricing over the next 12 months, contractors expressed expectations of a steady rise in prices. 'Internal finishes' trades have pushed the average level of demand upwards due to the shift towards refurbishments of offices.
There has been a slight cooling in the expected rate of growth in prices for Mechanical, Electrical and Plumbing (MEP) services, as the market recalibrates in response to changing demand.
When contractors were asked how they mitigate risk in high-stake development projects, they said that the requirements for pre-construction services agreements have changed and become more stringent. They also commented on the importance of credit checks and assurances on supply chains.
When considering pricing over the next 12 months, contractors expressed expectations of a steady rise in prices. 'Internal finishes' trades have pushed the average level of demand upwards due to the shift towards refurbishments of offices.
There has been a slight cooling in the expected rate of growth in prices for Mechanical, Electrical and Plumbing (MEP) services, as the market recalibrates in response to changing demand.
When contractors were asked how they mitigate risk in high-stake development projects, they said that the requirements for pre-construction services agreements have changed and become more stringent. They also commented on the importance of credit checks and assurances on supply chains.
Ongoing labour pressures are the main driver of expected price rises over the next 12 months.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 changeSource: Deloitte
Labour in the construction market is anticipated to be the main driver of price changes over the next 12 months. Nomis, the official labour market statistics platform, indicates that approximately 200,000 jobs have been lost in the construction sector since 2019, resulting in a severe shortage of skilled labour. There are some hopes that more favourable working agreements with other countries may help reduce some of the shortage. However, it would be a mistake to rely entirely on foreign workers to help plug the hole. The recently announced increase of 6.7% in the national minimum wage and 1.2 percentage points in employers' National Insurance contributions will likely increase labour costs in the construction sector.
'Regulations' has shown the second highest rate of growth as a driver of price change. Additional fire safety regulations and the Building Safety Act are affecting the time it takes to get regulatory sign-off, another factor impacting the viability and cost of a project. Testing has become more stringent, affecting the time required for design, approvals, and the cost of third-party sign-offs, all of which affect pricing.
'Plant hire' and 'Market risks' are also contributing drivers of pricing changes. The shortage of skilled labour has also led to an increase in training costs, and the implementation of fire protection measures adds further to the cost of construction.
Labour in the construction market is anticipated to be the main driver of price changes over the next 12 months. Nomis, the official labour market statistics platform, indicates that approximately 200,000 jobs have been lost in the construction sector since 2019, resulting in a severe shortage of skilled labour. There are some hopes that more favourable working agreements with other countries may help reduce some of the shortage. However, it would be a mistake to rely entirely on foreign workers to help plug the hole. The recently announced increase of 6.7% in the national minimum wage and 1.2 percentage points in employers' National Insurance contributions will likely increase labour costs in the construction sector.
'Regulations' has shown the second highest rate of growth as a driver of price change. Additional fire safety regulations and the Building Safety Act are affecting the time it takes to get regulatory sign-off, another factor impacting the viability and cost of a project. Testing has become more stringent, affecting the time required for design, approvals, and the cost of third-party sign-offs, all of which affect pricing.
'Plant hire' and 'Market risks' are also contributing drivers of pricing changes. The shortage of skilled labour has also led to an increase in training costs, and the implementation of fire protection measures adds further to the cost of construction.
Payments periods are lengthening, adding to the pressures on an already distressed sector.CC&WS survey: What payment periods do you currently experience, please indicate below as a percentage of your current contractsSource: Deloitte
This above chart indicates the average payment period between an invoice being issued and payment being received. There is a concern, as longer payment periods are adding to both cash flow and working capital pressures, adding fuel to the risk of contractor insolvencies.
We have recorded a sizeable increase in the percentage of payments in the 61-90 days period. We asked contractors how, faced with longer payment periods, they mitigate the risks. Many commented on the use of credit insurance by the main contractors. This helps to protect them against non-payment if they move into liquidation. Credit insurance can help protect contractors and subcontractors throughout the supply chain.
ISG's insolvency in September 2024 has had a significant impact on the market. The claims of trade creditors are reported to be substantial, and it is likely that there will be significant knock-on effects throughout the entire supply chain. These fallouts will take a while to filter through and be reflected in the market. It all comes back to risk, and if payment terms continue to lengthen, the pressure on an already distressed sector will increase.
This above chart indicates the average payment period between an invoice being issued and payment being received. There is a concern, as longer payment periods are adding to both cash flow and working capital pressures, adding fuel to the risk of contractor insolvencies.
We have recorded a sizeable increase in the percentage of payments in the 61-90 days period. We asked contractors how, faced with longer payment periods, they mitigate the risks. Many commented on the use of credit insurance by the main contractors. This helps to protect them against non-payment if they move into liquidation. Credit insurance can help protect contractors and subcontractors throughout the supply chain.
ISG's insolvency in September 2024 has had a significant impact on the market. The claims of trade creditors are reported to be substantial, and it is likely that there will be significant knock-on effects throughout the entire supply chain. These fallouts will take a while to filter through and be reflected in the market. It all comes back to risk, and if payment terms continue to lengthen, the pressure on an already distressed sector will increase.
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Submarket snapshots
Central LondonCentral London office pipelineCentral London: Volume of new starts and completionsWhat sector is taking the most space?Let vs. available space under constructionNew-build vs. refurbishment volume under construction
The CityThe City office pipelineWhat sector is taking the most space?Let vs. available space under constructionNew-build vs. refurbishment volume under construction
MidtownMidtown office pipelineWhat sector is taking the most space?Let vs. available space under constructionNew-build vs. refurbishment volume under construction
West EndWest End office pipelineWhat sector is taking the most space?Let vs. available space under constructionNew-build vs. refurbishment volume under construction
SouthbankSouthbank office pipelineLet vs. available space under constructionNew-build vs. refurbishment volume under construction
DocklandsThe Docklands office pipelineWhat sector is taking the most space?Let vs. available space under constructionNew-build vs. refurbishment volume under construction
King's CrossKing's Cross office pipelineWhat sector is taking the most space?Let vs. available space under constructionNew-build vs. refurbishment volume under construction
PaddingtonPaddington office pipeline
ContactsInsights
Rosie HaighManager, Real Estate Insights Leadrhaigh@deloitte.co.uk+44 (0) 20 8071 3172
