In November 2021 Deloitte published its latest press release regarding the 25th anniversary edition of Deloitte’s London Office Crane Survey entitled “Improved confidence as volume of new London office construction increases”, which looks at the London construction market and compares results of new London office construction and London office refurbishment to previous Crane Surveys.
Background Behind the Deloitte Crane Survey
Deloitte publishes the London Office Crane Survey every six months and covers seven major central London office markets (known as submarkets). These are The City, West End, Docklands, King’s Cross, Midtown, Paddington, Southbank, as well as three emerging submarkets: Vauxhall-Nine Elms-Battersea, White City and Stratford.
The Crane survey was first published in 1996 and is seen as the “definitive” review of the state of office construction in central London and future London office supply. Each report looks at what office development, both new builds and office refurbishments of 10,000 sq ft or more, is taking place across London at the time of the report. The report also analyses the pipeline of future development over the following four years.
Significant Improvement In Performance
London’s office market has seen a significant increase of 10% in the volume of new office builds, up to 3.4 million sq ft between April and September 2021 from the long term average of 2.4 million sq ft. The average scheme size is reported to have risen by 28%, which the report feels signals “a greater appetite to take on risk on individual schemes.”
Mike Cracknell, director in real estate at Deloitte is quoted as saying: “The volume of new starts points to the resilience of demand for offices as an asset class, in spite of the dramatic shift in working practices in response to the pandemic and months of home working.”
Greater Prevalence Towards London Office Refurbishment
Overall the trend continues towards a greater proportion of London office refurbishments over new builds. London office refurbishments account for 54% of all new start volume in comparison to 44% in the summer Crane survey of 2018.
Philip Parnell, real estate valuation lead at Deloitte explains: “The uptick in new builds over the past three surveys has not disrupted the trend towards refurbishments – a structural shift we believe is happening driven not least by sustainability considerations. In addition to the cyclical attraction of refurbishments in uncertain times, concerns over embodied carbon [the CO2 emitted in producing materials] has also prompted an aversion to outright demolitions. The focus on refurbishment over redevelopment is unlikely to diminish as carbon accounting including embodied carbon and the drive to net zero continues to gather momentum.”
Covid Impact On London Office Demand – New Builds and Office Refurbishment
We previously reported that home working had impacted London office demand. Understandably many businesses were adopting a wait and see approach before deciding if they would commit to leasing new office space. However developers are now more optimistic that the impact of home working on the demand for office space is likely to be far less than was first predicted as rules have changed and people are starting to go back to work. 37% now believe home working will have no impact on leasing demand, more than 3x the percentage compared to 12 months ago and around 90% of developers are more optimistic overall about the demand for leases when compared to six months ago.
This optimism is reflected when looking at how developers expect the leasing pipeline to behave. 65% expect their pipeline to increase and 0% expect it to fall, compared to 7% and 29% respectively when compared to the Crane survey carried out in winter 2020.
Siobhan Godley, real estate leader at Deloitte, says: “The London office market continues to recover from the disruption caused by the pandemic. Developers are optimistic as the market has become more buoyant and there is renewed confidence about the future. It’s clear that the focus for the future is on high-quality sustainable office space. Occupiers’ requirements are also changing as flexibility becomes a key priority to accommodate varying work patterns and the market is responding with a wider choice of leasing arrangements for offices. Amenities continue to be shaped by the impact of the pandemic, increasingly centring on promoting health and wellbeing; from improved ventilation and mindful spaces to removing unnecessary touchpoints such as lift buttons.”
Mike Cracknell added: “The survey shows a rise in pre-lets of new construction starts with 19% observed this time, up from 10%. Alongside this, there have been high levels of speculative development – above the survey’s long-term average. This is reflecting developers’ ability to ‘look through’ the short-term effects of the pandemic to a future where occupancy and demand will rebound, even if working patterns and office configurations also change.”
In Summary
- The number of new office starts has reached 3.4 million sq ft over a 40% increase in the long term average of 2.4 million sq ft. The average scheme size also increased by 28% which the report suggests could be due to greater risk appetite.
- For the 3rd consecutive survey in a row the proportion of new office builds has risen, up from 33% in the winter 2020 survey to 46% of the total.
- There is still a structural shift towards London office refurbishments which is being driven by sustainability and concerns over embodied carbon.
It’s clear that London office refurbishments will continue to play a major role in office occupancy this year and in the coming years. We recommend that any office refurbishment work should make certain that office layouts are well designed and include flexibility and adaptability as standard, while ensuring the health and well-being of office occupants of office occupants is treated as a priority.
How Can JBH Refurbishments Help?
JBH Refurbishments have over 30 years experience London office planning, design and build and office refurbishment. From your project brief, to putting together a project plan, to developing your office design and layout to delivering your office fit out JBH Refurbishments will provide piece of mind. You can contact us on 0333 207 0339 or via our contact page today for a free on site consultation.
