Central London offices are facing a 12-month development pipeline delay, as data from Savills shows more than 43% of projects due for delivery between now and 2026 have been delayed.
Savills’ research estimates that over the past year, 20% of projects due for completion by 2026 have been delayed by more than 12 months, while 70% of the pipeline has not yet had construction begin.
This bottleneck could result in a potential fallout of up to 5m sq ft of office development over the next four years, putting a strain on the capital’s ability to meet occupier demand by delivering prime offices.
The report also noted that increased material costs and supply chain issues due to market trends have maintained upward pressure on costs and project timescales. Savills warned that the addition of planning issues and turbulent economic conditions may worsen delays.
James Goldsmith, director in strategic investment advisory at Savills, said that the current environment “brings the question of viability into firm view”, with added economic uncertainty “presenting a real threat to the delivery of prime offices that occupiers are demanding and the market needs”.
He said: “If we are to avoid further delays in delivery, rents for new schemes with the best environmental credentials have to rise. We understand occupiers are prepared to pay higher rents in return for amenity-rich buildings with good connectivity and better sustainability credentials, with 90% of space acquired in 2022 of grade-A standard. There is also evidence of a green premium, with the best-rated BREEAM buildings on average achieving rents 11% higher than in unrated buildings during 2021.”
Mat Oakley, head of commercial research at Savills, said: “A tightening development pipeline in the medium term implies stronger than expected shortages of the best space. While economic conditions might lead to us revising down our near-term rental growth forecasts, the changing supply and demand balance in the medium term should compensate for any near-term weakening.”
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