Office construction projects in central London are facing delays of up to half a year due to the Covid-19 crisis.
The latest London Office Crane Survey from Deloitte Real Estate predicts that developments already under construction will see their completion timings slip by between three and six months.
“The crane survey suggests many of the new offices expected to complete in 2020 will be postponed until next year,” said Deloitte Real Estate director Mike Cracknell. “However, we believe any permanent halts to construction that is already under way are highly unlikely.”
Future developments may struggle to gain momentum given that developer optimism has plummeted. All of the developers interviewed at the end of March by Deloitte said their expectations for leasing demand over the coming months had deteriorated.
“We foresee very few developments being launched in the next six to nine months, as decisions will be deferred until there is more stability in the market,” Cracknell said.
“Office occupiers are likely to be reassessing their real estate needs – reflecting on costs, required occupancy ratios, ability to deliver and sustain critical functions, ease of access and overall business resilience.”
Cracknell said 10 schemes, totalling 1.4m sq ft, that were close to starting construction in mid-March would all “now undoubtedly be under review”.
All-time high
Despite the challenges now facing the market, new office construction starts in central London rallied to an all-time high over the six months to the end of March, as more than 5m sq ft across 45 schemes got under way.
“The high volume of new construction starts in this survey reflected a surge in optimism on the back of much-sought-after political certainty, as well as significant confidence in the London office market prior to Covid-19,” Cracknell said.
Across the capital, 15.3m sq ft is currently being developed on 112 projects, a 29% uplift on the previous survey and a 41% rise on the long-term average.
Office construction in the City of London rebounded in the six months in March, representing nearly half (48%) of all office construction in central London, with 16 new developments starting.
Total office space under construction in the City grew by 38% to 7.3m sq ft. This includes the 880,000 sq ft project at 40 Leadenhall Street and the 770,000 sq ft scheme at 8 Bishopsgate breaking ground in the period. These two developments accounted for 33% of all new construction volume in the capital.
Building activity continued to increase in the West End, with 2.6m sq ft under construction and 12 new starts amounting to 550,000 sq ft.
The South Bank was the third-busiest submarket, with seven new projects – equating to 560,000 sq ft – taking off in the six months to March, the highest number of new starts ever recorded by the survey for the area.
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