Developers predict 15% drop in demand for London office space
London’s landlords believe the long-term demand for office space will shrink by an average of 15% in terms of square footage as people work from home more regularly, according to Deloitte Real Estate.
In its bi-annual London Office Crane Survey, 47% of landlords surveyed said they expected tenants would need 10% less space going forwards. A further 41% believed there would be a 20% reduction in office space needs from tenants.
The response follows weak demand for office space since the outbreak of Covid-19, with 57% of developers reporting that letting conditions were either worse or the same compared with the end of March.
London’s landlords believe the long-term demand for office space will shrink by an average of 15% in terms of square footage as people work from home more regularly, according to Deloitte Real Estate.
In its bi-annual London Office Crane Survey, 47% of landlords surveyed said they expected tenants would need 10% less space going forwards. A further 41% believed there would be a 20% reduction in office space needs from tenants.
The response follows weak demand for office space since the outbreak of Covid-19, with 57% of developers reporting that letting conditions were either worse or the same compared with the end of March.
This lack of demand was flagged by 85% of developers as a major obstacle to starting any new development. In the six months to the end of September, new office construction starts fell by 50% to 2.6m sq ft compared with its previous survey.
In the City of London, new construction activity has fallen by 60% to 1.2m sq ft across 10 schemes, compared with 2.8m sq ft across 16 schemes in the previous survey. In the West End, office development was flat with 12 new starts breaking ground, equivalent to 500,000 sq ft.
“Until there is more clarity about occupiers’ office plans, developers will hesitate to embark on new projects, particularly speculative ones,” said Mike Cracknell, director at Deloitte Real Estate.
The reluctance to start on new builds has led to an increase in major refurbishments – more than two-thirds of new construction starts were upgrades of existing properties.
Cracknell added: “By transforming outdated buildings into Covid-safe, high-quality workspaces, developers are looking to upgrade and future-proof their offices in a market where occupational demand is increasingly discerning.”
Some 3.3m sq ft of office construction scheduled for completion between April and September remains under construction, Deloitte said.
Cracknell said if these projects had completed on time, the total volume under construction across the capital, which is still high at 15.1m sq ft, would have been lowered by almost a quarter.
“This lower level of new construction and substantial delays in office completions will have a major impact on future supply levels, leading to a self-correction which should prevent oversupply in the short term,” he added.
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