Despite concerns over Brexit threats cutting back on construction output office construction in the capital has surged…
In the past six months the number of new office buildings under construction in London has reached record levels. Some 52 office developments started work, bringing the total pipeline under construction to 14.2m sq ft. This represents the highest level since the beginning of 2008.
The data, collected by consultancy firm Deloitte, shows that despite fears over the upcoming EU referendum developers are still building.
Head of occupier advisory at Deloitte Chris Lewis said the activity was due to a supply squeeze, dating back to after the financial crisis.
“Availability is the lowest it’s been for 15 years. The amount of development we’ve seen feeding through over the past five years has been below average, and as a result there has been very little space completed,” he said.
“It is a surprise to see this many new schemes.”
Author and researcher at Deloitte Shaun Dawson said any “Brexit effect” would not be seen for a while, as major development projects take between four and five years to prepare. Additionally, they are difficult to stop once construction is underway.
The research revealed 42 per cent of space in the development pipeline has already been let. This is an increase on six months ago, but some 58 per cent of space under construction still needs tenants. Analysts warn of a possible oversupply, with some 39m sq ft of new space set to be completed between 2017 and 2020.
Dawson said: “We are not seeing a big overhang of space — we are still playing catch-up. With the rate of demand we’ve been looking at this year, the amount of space that is being completed will do little to affect affordability levels.”
The news comes on the back of Glasgow and Edinburgh also seeing the highest levels of office take-up since the financial crisis during the first quarter of the year.
Commercial property consultants Bilfinger GVA revealed the data in its Big Nine report for Q1 of 2016. It showed office take-up in Glasgow city centre was 288,987 sq ft—more than double the five year quarterly average of 143,402 sq ft.
The figure was helped by the pre-let of 155,000 sq ft at HFD Property Group’s 122 Waterloo Street. The deal represented the largest in the UK during the quarter and offered opportunity for more city development.
Alison Taylor, director and head of business Space in Scotland for Bilfinger GVA, said: “Now that construction has begun in Waterloo Street, there is potential to develop the adjacent 215,000 sq ft site at 177 Bothwell Street.
“Demand is high in Glasgow for Grade A offices so any additional space is quickly snapped up. Accountancy body ACCA has taken the remaining 55,000 sq ft in BAM’s 110 Queen Street development while only two and a half of the 11 floors remain available at One West Regent Street.”
Out-of-town space in Glasgow also saw an increase in the number of enquiries, with 86,282 sq ft take-up. This was above the five year quarterly average of 85,699 sq ft.
Edinburgh also performed well, with Napier University’s 107,000 sq ft acquisition at South Gyle Business Park standing as the largest out of town deal.
Peter Fraser, associate director at Bilfinger GVA, said: “At the moment there is a significant amount of unmet demand for business park space in the capital at a time when stock levels are relatively low. In particular, there is now just over 50,000 sq ft available at Edinburgh Park, Scotland’s premiere out-of-town business park.
“With the prospects of any new speculative office development unlikely, this will undoubtedly lead to rent rises in the out-of-town market.”