New research from Deloitte highlights developers are pressing pause on new office schemes in the capital city after the volume of commercial space under construction skyrockets.
Deloitte, one of the largest accounting firms, has published findings from its recent survey which highlights that the number of project starts in London has dropped by almost a fifth in the last six months, with completions also in retreat.
According to experts, some 16.4 millions sq ft of office space across 127 schemes is now under construction in the capital city following a record number of project starts in 2023. In addition, an estimated 4.2 million sq ft of office space has broken ground across 42 schemes since last December – almost 18% lower than Deloitte’s last survey towards the end of 2023.
It is thought that the backlog has been caused by previous project delays that happened as a result of climbing interest rates, inflation and supply chain disruption in 2022.
Against this backdrop, office completions are expected to be down this year compared to 2023, which saw the second highest volume of completions in the history of the survey at 7.5 million sq ft.
Margaret Doyle, Deloitte partner and chief insights officer for financial services and real estate, said: ‘In response to these macro factors, we are seeing developers trying to de-risk schemes, for example, breaking up projects into discrete chunks, and delaying instructing contractors until a substantial portion of the scheme has been let.
‘These defensive actions by developers appear to be behind the declines in both new start and completion volumes seen in this survey and may presage a medium to long-term supply squeeze.’
Overall, the only area of London that recorded an increase in activity in the survey – with an uptick of 12% – was Midtown, the part of central London situated between the city and the West End, which includes Farringdon and Holborn.
In the report researchers found more than 2.5 million sq ft of the new starts over the last six months were office refurbishments, which have outperformed office newbuilds for the last eight consecutive surveys – a trend that has particularly been popular in the West End. Here, upgrades of listed buildings has seen the district edge above the City of London as the most active submarket for new construction activity due to three large new starts totalling 945,000 sq ft, although the Square Mile still had the largest long-term outlook for construction volumes.
Image: Danny Lau
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