Lack of London office space drives a 24 per cent increase in office construction
The amount of office space under construction in London rose by 24 per cent in the six months to the end of March, rising to 9.5m square feet.
A report by Deloitte shows the improving economy is driving a rise in speculative building, with more and more office space available to let. A dearth of avialable space has become more evident in the years after the financial crisis, and developers have pounced on the opportunity.
The 9.5m square feet currently under construction is only just above the 10-year average of 9.2m square feet, but the jump itself is the second biggest in 20 years. What is more, 2014 was a bumper year for construction: the 6.3m square feet completed during that period was a 10-year high.
During the six month period, 31 new schemes have started, totaling 4.4m square feet. That volume is the highest since the first quarter of 2011. This glut has come too late for 2015 to post bumper completions, but the fruits of this year's construction will come in 2016 and 2017, Deloitte predicts.
The reason for the boom is growing demand from businesses as the economy continues to improve. 37 per cent of the office space under construction is already leased, with half of that going to the technology, media, and telecommunications sector.
The construction industry in London is still operating in a market scarred by the financial crisis. There was little activity in the five years following the financial crisis, and this has meant a shortage in supply.
This has affected the City more than other areas: while 84 per cent of new West End office space is unlet, that is only true of 50 per cent of City office space under construction. The figure for the Docklands is 59 per cent. The shortage of property in the City has been pushing up prices, with rents having risen around 14 per cent in the past two years.