Total new office starts up 80%
Office refurbishment starts in London have hit an all-time high as developers rush to meet energy efficiency standards.
According to Deloitte’s bi-annual London Office Crane Survey, 37 refurb schemes covering 3.2 million sq ft began on site in the six months to March – the highest number and volume since Deloitte began tracking in 2005.
The requirement for office spaces to achieve an EPC B rating by 2030 is driving the trend, according to the consultant, along with a broader shift in demand towards high-quality office space.
The record refurbishment starts reflects a “race to avoid obsolescence” among developers, according to Sophie Allan, director in real assets advisory at Deloitte.
Philip Parnell, real estate valuation lead at the business, added: “At a time when many of the traditional drivers of development activity such as capital value growth are lacking, a combination of positive ESG-related opportunities and downside stranding risks associated with physical obsolescence and accelerated value erosion, means there is strong stimulus for renewal.”
The volume of all new office starts – refurbishments and new builds – was up by almost 80% on the winter survey, with the West End continuing to lead the way.
New construction started across 50 schemes in the capital, covering a total of 4.4 million sq ft. Roughly 1.3 million sq ft of that was made up by the West End, where new starts were up for the second consecutive survey.
The City has dropped to just under 600,000 sq ft in contrast, continuing its steady decline in activity over the past few survey periods.
The average new scheme size across London has risen since the last survey, from roughly 79,000 sq ft to 88,000 sq ft.
Allan said developers were “cautiously optimistic” about the development pipeline, with improved infrastructure and transport links attracting investment to “previously overlooked areas” like mid-town and the eastern fringes of the City.
“This is undoubtedly a vote of confidence in London after the intense disruption of the pandemic, disturbance to supply chains and rising inflation experienced over the past year,” she added.
“Whilst construction levels remain high, developers are acutely aware of elevated construction costs, which remains the biggest challenge, with both labour and material seen as major drivers.”
More than 10 million sq ft of new office space is now projected to complete in 2023, with 22 schemes set to finish within the October to March survey period having pushed their completion dates to the remaining three quarters of the year.