Office new builds overtake refurbs for first time in four years

Traditional office new builds overtook refurbishments by 1.4 million sq ft in London for the first time in four and a half years, according to a new Deloitte survey.

Professional services provider Deloitte’s London Office Crane Survey Winter 2024, measures the volume of office development taking place across Central London, covering the period from April 2024 to September 2024.

ACTIVITY

New construction activity for survey respondents declined by 12 per cent over the previous period, with 3.7 million sq ft recorded new starts over 29 schemes

However, it remained above the ten-year average of 3.4 million sq ft. 

Large-scale life science developments made up over a third of the new construction volume and are the sole drivers of new activity in the King’s Cross and Docklands submarkets.

Meanwhile, offices accounted for 25 new starts with a total volume of 2.4 million sq ft, a 42 per cent decline over the Summer 2024 survey.

ESG

Refurbishment levels fell by 57 per cent with the volume of new build traditional offices marginally exceeded refurbishment for the first time in four and a half years.

That equates to the start of 1.2 million sq ft across 18 refurbishment schemes, with the volume of new build traditional offices totalling 2.6 million sq ft starting across 11 new build schemes.

However, overarching developer sentiment towards sustained pipeline growth suggests that this reduction may be a temporary ‘blip’.

COMPLETIONS

In terms of completions the survey recorded a 72 per cent completion delivery, which has inflated the ongoing construction volume.

The survey found 2024 is on track to deliver between 5.9 million sq ft to 6.8 million sq ft with no indication that completions will saturate the market.

But completions this year fell short of the Summer 2024 survey projections, with 4.6 million sq ft. completed over the first three quarters compared to a forecast of 5.6 million sq ft 

Annual completions for 2024 are now anticipated to reach 7.5 million sq ft, down from the 8.7 million sq ft projected in the Summer 2024 survey.

According to the latest market estimated completion dates, 2025 and 2026 are predicted to deliver 8.9 million sq ft and 6.9 million sq ft

COST AND INSOLVENCIES

Survey respondents rated ‘Construction costs’ and ‘Planning issues’ as the leading challenges to development For the third survey in succession.

Meanwhile, “Supply chain issues” and the “Economic environment” dropped down the list of concerns, which Deloitte suggests reflects the improving macroeconomic environment, and possibly a reduction in domestic political uncertainty following Labour’s landslide election victory in July.

Contractor insolvencies are putting further pressure on an already distressed construction sector, as insolvencies among large construction companies have a knock-on effect on pricing. 

According to recent findings by the Insolvency Service, 4,310 Construction companies of various sizes went out of business in the UK in the year to August, which is 1.1 per cent higher than a year ago.