London demolition set to surge as offices get under way
Demolition is set to rise in London as clients prepare new construction sites for an anticipated surge in office development, according to the latest Deloitte London Office Crane Survey.
The Deloitte Real Estate survey shows 9.2m sq ft under construction across central London.
Deloitte said office availability was at its lowest since 2007 due to office development running at below-average levels for five years and a rise in office occupancy over the last year.
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The coming year will see 7m sq ft of Grade A office space delivered, the largest volume in a single year since 2003. Despite this, 45 per cent of the total volume under construction has already seen early letting success, so available space reaching the market will be significantly lower.
Deloitte Real Estate partner and head of research Anthony Duggan said: “Developers that started office development schemes at the first signs of economic recovery in 2011/12 are now reaping the rewards as their schemes complete at a time of reducing availability, increased tenant demand and rental growth.
“There are currently just ten Grade A buildings in central London that are available to let as a whole, and only five which can offer an occupier 100,000 sq ft of space or more, which is severely limiting choice.”
Deloitte’s pipeline analysis shows that 2015 will see just 1.1m sq ft of available space delivered across central London, adding to the already low levels of availability.
This is having a knock-on effect on rising prime rents, with City and West End rents almost back to pre-recession levels (currently £57.50 per sq ft and £110.00 per sq ft respectively).
Mr Duggan said: “We expect a short-term squeeze on supply across central London. The lack of choice for occupiers is likely to drive a further rise in pre-letting over the next 12 to 18 months.
“For some occupiers, this will be the only option to secure the right space. An increased premium is likely as both supply constraints and rising construction costs continue to place upward pressure on rents.”
Deloitte’s analysis showed that delivery could begin to recover in 2017 when the current 4.5m sq ft demolition phase begins to translate into completed schemes.
Mr Duggan said: “Taking into account all proposed schemes that have the potential to start construction, new supply would only be marginally above the long-run average level.
“However, the timing of such developments will be monitored closely to identify the shift in supply volumes in the medium-to-long-term.”