The winter 2024 edition of the Deloitte London Office Crane Survey has revealed a decline in new construction starts, a decrease in delivered projects, and refurbishment starts falling below the level of new builds for the first time in 4.5 years.
The survey – which collected data between April and September 2024 – recorded 3.7 million sq. ft. of new office construction starts across 29 schemes, representing a 12% decrease in volume compared to the previous survey. However, this figure remains above the 10-year average of 3.4 million sq. ft.
Notably, life science schemes, which contain both laboratory and office workspaces, were responsible for 35% of new construction starts, representing 1.3m sq. ft. These developments are the main drivers of new activity in the King’s Cross and Docklands submarkets. New construction fell across the other Central London submarkets, except for the City, which saw a 7% uptick in new office construction activity.
Excluding schemes targeting life science occupiers, there were 25 new office construction starts adding a total volume of 2.4 million sq. ft. to the development pipeline. However, this represented a 42% decline from the summer 2024 crane survey.
Caroline Waldock, partner and real estate lead at Deloitte, said: “It has been a challenging year for London’s office market. Not only has it had to grapple with continued geopolitical and economic uncertainty, but construction contractor insolvencies have placed additional pressures on an already distressed construction sector.
“Activity in the life science sector may reinvigorate quieter markets in the short-term, but demand for this space is less certain. Looking further ahead, the recent cut in interest rates and the easing of construction cost inflation could be crucial in boosting new scheme numbers. Our survey has recorded a renewed sense of positivity among developers that suggest the decreases we’ve noted may be short-lived.”
Refurb levels fall – but positive sentiment remains
The crane survey recorded the start of 1.2 million sq. ft. across 18 refurbishment schemes, which represented a 57% decrease compared to the volume recorded in the previous survey. For the first time in 4.5 years, volumes of new build traditional offices marginally exceeded those of refurbishment.
However, a survey of developers conducted alongside the crane survey indicated that there remains an overarching positive sentiment towards sustained growth in the development pipeline. Developers’ optimism is high as 92% said their development pipeline will increase or stay the same in the next six months. The proportion of developers expecting a reduction in their pipeline is markedly less than two years ago (55% vs. 8%).
Philip Parnell, partner and head of valuation and real estate climate & sustainability lead at Deloitte, added: “Refurbishment levels have pared back markedly in this survey from previous high levels, and likely a reaction to the economic, geopolitical and wider global concerns prevailing during the survey period. However, developers' appetite to maintain their pipeline of activity, coupled with the continuing need to address evolving occupier requirements and ESG credentials, suggests this may be a blip rather than a trend.”
Delivery drops as delays contribute to record construction levels
This survey recorded the delivery to market of 2.7 million sq. ft. of office space across 35 schemes, 28% less than the 3.8 million sq. ft. that was expected to be delivered.
These delays have contributed to the record high levels of ongoing construction – currently standing at 16.8 million sq. ft. According to developers’ latest estimated completion dates annual completions for 2024 are anticipated to reach 7.5 million sq. ft., down from 8.7 million sq. ft. projected in the summer 2024 survey. However, based on recent trends, the survey suggests that the actual 2024 delivery to market will likely be less than 6.8 million sq. ft.
For the third survey in succession, developers listed "planning issues" as a leading challenge to development. This survey also saw "construction costs" rising as a top challenge, while "supply chain issues" dropped down the list of concerns.
Waldock continued: “The findings in our latest crane survey align with a recent trend that has seen completion levels significantly lower than previous projections. Despite developer optimism, it is likely that the many challenges faced by the construction industry will continue to impact completion levels for the foreseeable future. The subsequent squeeze on supply may well lead to increased rents for the most in-demand office spaces.”
