A “glut” of empty office space is coming back to the market with developers responding by slowing down activity, according to Deloitte’s latest Crane Survey.
Deloitte said that availability of stock remained “stubbornly” high at 15.4m sq ft at the end of September, up by 31% in a year, with the majority of the rise coming from second hand space, painting a relatively bleak picture about the overall absorption of stock by occupiers.
The biannual survey, published today and perceived as a benchmark for the health or otherwise of the central London market, shows the capital’s overall existing office pipeline reducing to 12.6m sq ft over the six months to September 2017 – a 9% decrease on the previous half-year.
New starts fell to 1.8m sq ft or 25 individual starts, which was notably down from the 2016 peak of 51.
No sign of budging
Deloitte’s report, which examines schemes of 10,000 sq ft or more across key central London submarkets, said: “It is this glut of space that sees no sign of budging and is only expected to increase further as those businesses that have committed to new space release older stock back to the market.”
The number of new scheme starts in the City of London has lowered accordingly in line with this negative indicator, reducing from last year’s high of 26 to just eight schemes. There has been a simultaneously high level of City of London completions over the period, with 3.4m sq ft of offices completing in total.
In the West End, however, it was new starts that won out: an unusually high number of schemes, 14, got off the ground during the half-year – the highest level since 2011.
Overall West End “under construction” activity was up 20%. Yet, according to Shawn Dawson, head of real estate research at Deloitte, that was coming from a relatively low activity baseline over recent years.
He added: “We have seen resilient demand [across Central London] coming through over the past year, and high volumes of space completed is already leased at the point of completion. But the uncertain factor is the occupier side going forward.
“The volume of space starting is below average, and if we were to look at an indicator for a slowdown then that would be one.”
Despite the negative outlook for overall stock absorption, 44% of the space recorded in the survey was already leased prior to completion. That is, in fact, 1% higher than the previous six months.
Focus on financial services
The majority of take-up of space being developed over the period was markedly concentrated on financial and corporate services (45% and 24% respectively). Meanwhile, the importance of technology, media and telecommunications occupiers waned, taking up 7% of new stock compared with 21% in the preceding six months.
The amount of space being delivered in three emerging submarkets – Stratford, White City, amd Vauxhall Nine Elms Battersea – showed signs of shrinkage, with 2.3m sq ft under construction, an 11% reduction on the previous six months.
Overall in Central London though, 2017 is still expected to deliver the highest volume of completed office space since 2003.
However, the report added: “We continue to see the level of space dip in 2018, a year which had previously been expected to see the strongest year for delivery.”
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