Confidence through the roof in the London Office Crane survey

LondonThe London Office Crane Survey Winter 2021 suggests that confidence in London has improved dramatically in the developments taking place in the office market. The survey, compiled by Deloitte, states that the volume of new starts has increased from 3.1 million to 3.4 million square feet, above the long-term average of 2.4 million square feet.

The number of new starts has decreased: This means that the average size of the scheme has increased by 28 percent to 122,339 square feet, possibly a sign of an increased appetite for risk.

The ratio of new builds to renovations, while still below 50 percent of the total volume of new starts, has risen to 46 percent of the total, from 33 percent in the 2020 Winter Crane Survey. The rebound in new construction in the last three surveys has not interrupted the emerging trend toward renovations, which we believe is a structural change that is happening for sustainability reasons.

Key results

• The increase in new construction in the last three surveys may reflect a recovery in confidence after the initial impact of the COVID-19 pandemic, or decisions by developers to act on permits already granted, given the increasing reluctance of planners to sanction demolition due to concerns about embedded carbon.
• Volume under construction has been reduced to 13 million square feet, above the long-term average of 10.7 million square feet. Construction volumes have fallen in two consecutive studies, despite the increased volume of new starts as completions outpaced new starts in the summer. and Winter 2021 Surveys.
• The proportion of volume under construction that is pre-leased has fallen from 45 percent in the 2020 Winter Crane Survey to 31 percent in the winter of 2021. This is well below the long-term average of 44 percent. cent, and suggests a willingness on the part of developers and investors to ‘look through’ the current low physical occupancy rates due to the pandemic.
• The legal sector’s share of rentals has increased to 17 percent, versus a five-year average of 9 percent, reflecting one-time office changes. By contrast, the dominance of rentals in the technology, media and telecommunications (TMT) sector has fallen to 28 percent, from 40 percent in the 2021 summer survey.
• Some developers are cautious of the market: we found three schemes where work has been delayed.

Developer confidence is growing regarding the future of the work agenda, based on a growing body of research and experience on the changing impact of hybrid work on office demand. Collaboration in real estate to address climate change issues is also helping to shift approaches to development, rehabilitation, and asset management. However, the response to the risks associated with ‘stranded assets’ through obsolescence is less advanced.

“The office market must respond to a complex and evolving business environment”

“During this survey period, the government removed its ‘work from home’ guide,” explained Michael Cracknell, director of Deloitte. “Clandestine numbers show a gradual return to the office, with midweek passenger numbers in September at 65 percent of pre-pandemic levels.

“Deloitte’s latest CFO survey highlighted a slowdown in growth in the third quarter, with financial leaders navigating labor and supply shortages. Despite several headwinds, they are focused on investment and growth and how reducing carbon emissions can be incorporated into corporate strategy.

“The office market must respond to a complex and evolving business environment, with uncertainties around hybrid work and the zero net imperative. This is not easy with an asset that takes years to plan and build. The developers are eager to avoid the obsolescence of the second-hand stock that we see now. “

The survey provides detailed information and answers a number of key questions. What impact do the latest office construction figures have on supply levels? How concerned are developers about the demand for leasing? Are increasing environmental standards accelerating the obsolescence of secondary stocks?

This year marks the 25th anniversary of the launch of Crane Survey, which then covered only the West End. In the anniversary edition, Deloitte looks at the last six months of activity and the results of our developer and construction market surveys, as well as looking to the future.

To celebrate this milestone, he also asked industry leaders to reflect on the last quarter century and bring out their crystal balls for the next.

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