The London office market is in a “state of suspension” as a result of covid-19 but the number of new projects to break ground in the six months to September was higher than the long-term average.
That’s according to Deloitte’s Crane Survey, which found that work on 2.6 million sq ft of office space started over the period.
A total of just one million sq ft of central London space was leased in the three months to September, below the 3.4 million sq ft recorded in Q3 2019 as the London real estate market entered what Deloitte called a “state of suspension”.
There was a 50% decline in the volume of new construction starts – both new-build and refurbished projects – in central London over the period but Deloitte said the volume of projects was “broadly in line” with the long-term average for the survey and the volume of new starts “comfortably exceeded” new starts in the corresponding period in 2019.
While many speculative schemes had been postponed until 2021, the 35 separate new schemes that broke ground during the period was higher than the long-term average of 24.
The typical size of a new development shrank by more than a third on the previous survey and a quarter on the long-term average, however, amounting to an average of 70,000 sq ft.
The largest new start between April and September was the 447,000 sq ft 20 Ropemaker, which is close to the new Crossrail entrance at Moorgate station in the heart of the City of London. Demolition work had already begun in 2019 and the scheme had attracted a 300,000 sq ft pre-let from Linklaters shortly before the pandemic, leaving only a third of the space available. This office building is expected to complete in early 2023.
Deloitte said that completion of new office developments was delayed as contractors worked out how to build safety, holding up planned move. In the first lockdown, developers were also unable to market buildings as prospective tenants were unable to visit.
The UK government’s implementation of new restrictions in England meant that returning to the office has been further delayed but Deloitte said there was “much hope” that a vaccines programme would provide a way out of the situation.
Refurbishments on the rise
Meanwhile, there was an increase in refurbishment projects. The survey found that more than two-thirds of new construction starts involved an upgrade of existing office stock in as many as 28 separate schemes.
By contrast, just 0.8 million sq ft of new-build construction started, across seven schemes, between April and September – the lowest figure in three years. A total of 1.5 million sq ft of new-build new starts has now been delayed for another few months, while three new-build schemes with a combined volume of 0.5 million sq ft were paused indefinitely due to market uncertainty.
‘Flight to quality’
Deloitte predicted that with the availability of existing space in central London rising considerably in the six months to September, there would be an oversupply of poorer quality workspace. It said it did not expect this workspace to be absorbed even when the market recovers because occupiers will look for the best accommodation for their central London hubs.
“In the competitive second-hand market, landlords will increasingly need to improve and refurbish their existing office stock to the highest standards to be able to attract tenant demand and maintain the value of their buildings. The ‘flight to quality’ is therefore likely to become more pronounced, with more emphasis on sustainable, ‘healthy’ and ‘WELL’ buildings,” it predicted.
