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London Office Crane Survey Construction activity boostWinter 2015
Contents
The report 1
Key findings 2
Submarket snapshots 4
Crane Survey results 13
Outlook 22
Development table 30
Contacts 36
London Office Crane Survey 1
The report
Where?London, covering the central office markets: City, West End, Docklands, King’s Cross,Midtown, Paddington and Southbank
What?A report which measures the volume of office development taking place across central London and its impact
How?A team of researchers have walked every street in central London to monitor office construction. Our field research is thenverified with direct industry links and in-house property experts
Who?Developers building new offices or undertaking significantoffice refurbishment of 10,000 sq ft +
When?1 April 2015 to 30 September 2015
2
Key findings
London Office Crane Survey 3
Key findings
Outlook
Volume of new spacecompleted in 2015 expected to bethe lowest since 2012
Over half of the space under construction scheduled to complete over the next 15 months
Institutions are now developing the most new space
Rise in demolition levels to 6.4 million sq ft indicates more constructionis imminent
Low vacancy rates will fuel further pre-letting activity
Further upwardpressure on rentallevels
Tenants in expansion mode as they take more space
Crane Survey results
The TMT sector continues to lead leasing activity ofnew space
2.5 million sq ft of new office space completedin 2015 so far
Office construction is up18% over the past six months
to 11.1 million sq ft
26 new schemes have started totalling3 million sq ft,which is above the 10 year average
38% ofspace underconstructionis already let
TOLET
4
Submarket snapshots
London Office Crane Survey 5
Which sector is currently taking the most space?
Average size of a scheme
Number of new construction starts
Central London office development pipeline
Total amount completed this survey Total amount of space under construction which has been let
144,500 sq ft
Average size of a floor
Number of cycle spaces being built
13,000 sq ft
10,477
Total amount under construction
1.4 million sq ftacross 20 buildings
Million sq ft
Completed u/c available u/c let
0
2
4
6
8
10
201920182017201620152014201320122011201020092008200720062005200420032002
TMT
19
26
Highest
Lowest
37(2007)
4(2010)
10 year average
Today
Volume of new spacecontinues to rise higherthan the 2011 high point
38%let
0% 100%
Construction is up by 18% from six months ago.
Today: 11.1 million sq ft
Lowest2.7 million sq ft (2010)
Highest19.5 million sq ft (2002)
Submarket snapshotsCentral London
6
Which sector is currently taking the most space?
Average size of a scheme
Number of new construction starts
City office development pipeline
196,000 sq ft
Average size of a floor
Number of cycle spaces being built
14,000 sq ft
4,562
Total amount under construction
Total amount completed this survey
0.8 million sq ftacross 8 buildings
Total amount of space under construction which has been let
40%let
0% 100%
Million sq ft
Completed u/c available u/c let
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
201920182017201620152014201320122011201020092008200720062005200420032002
TMT
7
13
Highest
Lowest
20(2007)
0(2010)
10 year average
Today
A 30% rise in the numberof new starts.
Construction volumes have risen by 26%.
Today: 5.7 million sq ft
Lowest1.3 million sq ft (2010)
Highest8.2 million sq ft (2008)
Submarket snapshotsThe City
London Office Crane Survey 7
Submarket snapshotsWest End
Average size of a scheme
100,700 sq ft
Which sectoris currentlytaking themost space?
Average size of a floor
13,000 sq ft
Number of cycle spacesbeing built
2,889
West End office development pipeline
Number of new construction starts Total amount under construction
Total amount completed this survey
0.3 million sq ftacross 10 buildings
Total amount of space under construction which has been let
Million sq ft
Completed u/c available u/c let
0.0
0.5
1.0
1.5
2.0
2.5
201920182017201620152014201320122011201020092008200720062005200420032002
Construction volume up 5%.
Today: 2.4 million sq ft
Lowest0.7 million sq ft (2010)
Highest3.4 million sq ft (2007)
2
8
4
Highest
Lowest
13(2011)
(2009)
10 year average
Today
Number of new starts down bytwo-thirds from six months ago
31%let
0% 100%
TMT
8
Submarket snapshotsDocklands
Average size of a scheme
688,000 sq ft
Which sectoris currentlytaking themost space?
Average size of a floor
26,400 sq ft
Number of cycle spacesbeing built
864
Docklands office development pipeline
Number of new construction starts
0%let
0 %available
Total amount under construction
Total amount completed this survey
0 sq ftTotal amount of space under construction which has been let
Million sq ft
Completed u/c available u/c let
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
201920182017201620152014201320122011201020092008200720062005200420032002
Today: 0.7 million sq ft Lowest
0 million sq ft (2014)
Highest7.4 million sq ft (2002)
0
Highest
Lowest
1(2012)
(2015)1
0
10 year average
Today
41%let
0% 100%
Financial
London Office Crane Survey 9
Submarket snapshotsKing’s Cross
Average size of a scheme
104,000 sq ft
Which sectoris currentlytaking themost space? TMT
Average size of a floor
11,000 sq ft
Number of cycle spacesbeing built
646
King’s Cross office development pipeline
Number of new construction starts Total amount under construction
Total amount completed this survey
0 sq ftTotal amount of space under construction which has been let
Highest
4(2012)
0
Lowest
(2014)
1
Today
Construction volume rises by 38% with one new start
Today: 0.5 million sq ft
Lowest0 million sq ft (2011)
Highest0.8 million sq ft (2013)
Million sq ft
Completed u/c available u/c let
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
201920182017201620152014201320122011201020092008200720062005200420032002
69%let
0% 100%
2
10 year average
10
Submarket snapshotsMidtown
Average size of a scheme
95,500 sq ft
Which sectoris currentlytaking themost space?
Average size of a floor
10,900 sq ft
Number of cycle spacesbeing built
1,020
Midtown office development pipeline
Number of new construction starts Total amount under construction
Total amount completed this survey
0.3 million sq ftacross 2 buildings
Total amount of space under construction which has been let
Million sq ft
Completed u/c available u/c let
0.0
0.2
0.4
0.6
0.8
1.0
1.2
201920182017201620152014201320122011201020092008200720062005200420032002
Construction volumes up by 6% in six months
Today: 1.3 million sq ft
Lowest0.2 million sq ft (2010)
Highest1.3 million sq ft (2014)
0
6
Highest
Lowest
8(2013)
(2010)
Today
Same number of newstarts as six months ago
3
10 year average
Professional
41%Let
0% 100%
London Office Crane Survey 11
Submarket snapshotsPaddington
0
Average size of a scheme
112,500 sq ft
Which sectoris currentlytaking themost space?
Average size of a floor
10,000 sq ft
Number of cycle spacesbeing built
208
Paddington office development pipeline
Number of new construction starts
Highest
Lowest
2(2006)
(2015)1
1
10 year average
Today
Total amount under construction
Total amount completed this survey
0 sq ftTotal amount of space under construction which has been let
0% 100%
Million sq ft
Completed u/c available u/c let
0.0
0.1
0.2
0.3
0.4
0.5
0.6
201920182017201620152014201320122011201020092008200720062005200420032002
One new start boosts construction volume by 142%
Today: 0.2 million sq ft
Lowest0 million sq ft (2014)
Highest0.9 million sq ft (2002)
First new start since 2014
N/A
12
Submarket snapshotsSouthbank
Average size of a scheme
126,000 sq ft
Which sectoris currentlytaking themost space?
Average size of a floor
14,700 sq ft
Number of cycle spacesbeing built
288
Southbank office development pipeline
Number of new construction starts Total amount under construction
Total amount completed this survey
0 sq ftTotal amount of space under construction which has been let
Million sq ft
Completed u/c available u/c let
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
201920182017201620152014201320122011201020092008200720062005200420032002
One new start increases construction volume by 15%
Today: 0.3 million sq ft
Lowest0.1 million sq ft (2010)
Highest1.6 million sq ft (2014)
0
Highest
Lowest
2(2012)
(2015)1
1
10 year average
Today
First new start inover 12 months
0% 100%
N/A
Crane Survey results
London Office Crane Survey 13
14
Crane Survey results Construction volumes up
The total volume of office space under construction is at a seven-year highThe latest Crane Survey results show that the volume of office construction in central London has continued to rise, increasing by 18% over the past six months to 11.1 million sq ft. Activity is now comfortably above the 10-year average of 9.2 million sq ft and at the highest level since 2008.
Crossrail signals new office startsAt 73% of the total volume of construction, the City and the West End account for the bulk of activity. It is worth noting that, especially in the West End, a growing number of new developments are located away from the core – in areas such as North of Oxford Street that are set to gain greater connectivity through the arrival of Crossrail. Similarly in Midtown, which will also benefit, construction volumes have increased further in this survey (6%).
In fact, all but one London submarket (Docklands) has recorded an increase in construction in this survey. There has been a particularly notable rise (148%) in Paddington where two schemes are now under construction in a market that last saw any major development over five years ago.
0.5King’sCross
1.3Midtown
0.2Paddington
0.7Docklands
0.3Southbank
2.4West End
5.7City
11.1Total
Total volume under construction by submarketMillion sq ft
Total volume under construction per survey – central LondonMillion sq ft
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2011
Q1
2010
Q3
2010
Q1
2009
Q3
2009
Q1
2008
Q3
2008
Q1
2007
Q3
2007
Q1
2006
Q3
2006
Q1
2005
Q3
2005
Q1
2004
Q3
2004
Q1
2003
Q3
2003
Q1
2002
Q3
2002
Q1
0
2
4
6
8
10
12
14
16
18
20
London Office Crane Survey 15
No summer slowdown: high number of new startsHot on the heels of the 31 new schemes recorded in our last Crane Survey, six months on there has been little let up in pace, with 26 developments starting construction. These new schemes provide a further 3 million sq ft to the construction pipeline. The combined total of new space starting across these last two surveys is 7.5 million sq ft, the highest in over 13 years.
The City continues to lead with 13 new starts in this survey, the highest since 2012, and with a combined total of 2 million sq ft it accounts for 66% of the space started across central London. Whilst not quite reaching the recent peak of 2011, the current level is double that of the 10-year average. The six new construction starts in Midtown equal the number recorded six months ago, although the volume of space has decreased. Similarly fewer new construction starts have been reported in the West End and King’s Cross. However, the smaller markets of Paddington, Southbank and King’s Cross have all seen new starts this survey.
Volume of new starts per survey – central LondonMillion sq ft
Source: Deloitte Real Estate
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2011
Q1
2010
Q3
2010
Q1
2009
Q3
2009
Q1
2008
Q3
2008
Q1
2007
Q3
2007
Q1
2006
Q3
2006
Q1
2005
Q3
2005
Q1
2004
Q3
2004
Q1
2003
Q3
2003
Q1
2002
Q3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Average volumeof new starts
Let sq ft Available sq ft
City 5,685,300 2,302,300 3,383,000
West End 2,416,000 745,000 1,671,000
Docklands 688,000 280,000 408,000
King’s Cross 520,500 359,000 161,500
Midtown 1,338,000 543,000 795,000
Paddington 225,000 0 225,000
Southbank 252,000 0 252,000
Total 11,124,800 4,229,300 6,895,500
Winter 2015 – Office space under construction
Change since last survey
0% 0% 0%
0%
0%
-14%
-24%
5%
6%
142% 142%
38%
15%
18%
5%
21% 16%
15%
7%
26%
101%
120%
6% 43%
Total sq ft
16
Developer Rank
Brookfield 1
Land Securities 2
Canary Wharf 3
Stanhope 4
Great Portland Estates 5
King’s Cross Limited Partnership 6
Derwent London 7
Blackstone 8
WRBC Development 9
Oxford Properties 10
Top 10 developers by office space under construction across central London The shift in developers continuesOur recent Crane Surveys have highlighted the gradual shift away from property companies developing space towards other types of developers. As we continue out on an upward trajectory of new development, this shift continues to play out in our latest results. Institutions now account for 39% and their quantum of space is up by 16% to 4.4 million sq ft. As schemes by property companies start to complete and fall out of the Crane Survey, this trend will become more prominent. This is already evident in the ranking of the current list of top developers (ranked by volume of space under construction).
2015 to deliver the lowest level of completions in three yearsAs previously predicted the level of completions in 2015 will not come close to the volumes seen in 2014. Our estimates of six months ago have now been reined in a little further, as we now expect just 3.3 million sq ft to complete in 2015. A move in completion dates has beset a number of schemes, pushing them into 2016, and having only recorded 2.5 million sq ft this year so far, the picture is one of low supply for 2015. This is exacerbated by the strong letting activity on those schemes left to complete this year, reducing the amount available to just 32% or 272,000 sq ft.
This comes at a time when the level of available office space in the market has maintained its downward course throughout 2015 and is now at its lowest level in 14 years.
Largest building to havecompleted in this surveyAlphabeta, 14 Finsbury Square
City: 220,000 sq ft
London Office Crane Survey 17
However, as a result of some delayed development schedules and developers responding to a dearth of supply by kick-starting refurbishment projects, the level of completions predicted for 2016 is already in excess of 5 million sq ft, which is above the average level of Grade A take-up across central London. Our research shows that the next 15 months will see over half (56%) of the space of new starts complete.
The window for pre-letting is now wide open4.2m sq ft of space under construction has already been let – up 21% from our last survey. Although the percentage share of let space is at 38% (up from 37%), the rise in the total volume of space under construction has lessened the visible increase. Businesses have taken the opportunity to commit themselves to new space, in a market that is continuing to see a tightening of supply in the short-term. This is evident in the recently completed schemes, where 69% of space has already been let.
Largest new start
100 BishopsgateCity:867,000 sq ft
18
TMT sector drives leasing activityThe TMT sector remains the most dominant in taking new space. Of the space that has been leased either as a pre-let or during construction, TMT businesses account for 44%, equating to 1.8 million sq ft. The financial sector, which comes in second with 27%, has increased its share on six months ago, when it stood at 25%.
Yet if we look at the wider leasing activity of all office space, not just what is under construction, the financial sector is the largest followed by the corporates. As availability of supply reduces further over the coming months, it is likely that we will see some requirements from financial firms fulfilled by taking space under construction.
Whilst the TMT and financial sectors have taken the most new space, other businesses such as professional, legal and corporate have all recorded double digit growth in floorspace taken between surveys.
Reason for occupier movement
Source: Deloitte Real Estate
63%
31%
1%
5%
Consolidation – more space
More space
Consolidation – less space
New entrant Tenants are moving from a combined 2.3 million sq ft to 4.2 million sq ft
2.3m sq ft
4.2m sq ft
Percentage of spaces let by sector
Government
4%Insurance
2%Legal
5%Financial
27%TMT
44%Corporate
9%Professional
7%Other
2%
London Office Crane Survey 19
Businesses in expansion mode For much of the past year, results from Deloitte’s quarterly CFO surveys have shown that UK corporates have been raising their expectations for hiring. This sentiment is reflected in our latest Crane Survey results, which show that businesses leasing space continue to be in expansion mode.
Analysing those tenants and their reasons for taking space, 63% are taking more space as a result of consolidating various sites they currently occupy. A further 31% are taking expansion space. This has been an increasing trend since Q1 2014, when this reason accounted for just 18%. In fact, considering all the deals, tenants are moving from a combined 2.3 million sq ft to 4.2 million sq ft.
The City strengthens its attraction for tenantsOver the past couple of years we have been looking at the tenant movement of those that take space in the new developments. We have clearly identified that the City consistently retains the majority of its businesses as they move around the EC postcodes. Observing more closely, some of these firms are moving to the ‘Tech belt’, away from the core to the Shoreditch/Old Street area. This is strengthened when looking at the recently completed schemes: six out of eight schemes were located in the ‘Tech belt’, amassing 13 tenant deals between them, as opposed to just four elsewhere in the City, of which it could be argued some are closer to Midtown. Nevertheless, smaller locations have also become popular as is evident with King’s Cross and the regeneration of Victoria.
Movedin
4Moved
out
1Stayed
10Net
submarket deals
13Total
numberof deals
14Moved
in
4Moved
out
2Stayed
5Net
submarket deals
7Total
numberof deals
9Moved
in
1Moved
out
0Stayed
0Net
submarket deals
1Total
numberof deals
1Moved
in
3Moved
out
0Stayed
0Net
submarket deals
3Total
numberof deals
3Moved
in
2Moved
out
2Stayed
4Net
submarket deals
4Total
numberof deals
6
Tenant movement
West End
Docklands
King’s Cross
Midtown
City
20
The tech belt Construction keeps pace with demand
LON
DO
N B
RID
GE
THE HIGHWAY
BLA
CK
FFR
IAR
S B
RID
GE
MIL
LEN
NIU
M B
RID
GE
VICTORIA EMBANKMENT
SOUTHWARK STREETSTAMFORD STREET
WA
TERLOO
BRIDG
E
VICTORIA EMBANKMENT
CANNON STREET
LEADENHALL STREET
LONDON WALL
BEECH STREET
OLD STREET
OLD STREET
COMM
ERCIAL STREET
HOUNDSDITCH LEMA
N STR
EET
KIN
GSL
AN
DR
OA
D
CITY ROAD
STJO
HN
STR
EET
CITY ROAD
EAST
RO
AD
FARRINGDON ROAD
LONDON WALL
CHEAPSIDE
STRAND
LUDGATE
HOLBORN
HOLBORN
FETT
ER LA
NE
HILL
CABLE STREET
MINT STREET
ROYAL
OLD
STR
EET
BRO
AD BI
SHO
PGA
TE
GO
SWELL R
OA
D
CEN
TR
AL ST
REET
GO
LDEN
STREET
BR
ICK
LAN
E
BETHNAL GREEN
VA
LLAN
CE R
OA
D
GOSSET STREET
HACKNEY ROAD
ROAD
Tech belt
The City
Over recent years the attractiveness and subsequent migration of businesses to areas such as Old Street has been well documented. Typified by technology and media start-ups, the area is now home to some of the most innovative firms in the industry. The surrounding locations have, in turn, increased in popularity among businesses feeding off and into this developing location. It is these areas that have traditionally been the fringes of the main central London submarkets. In order to understand the area’s dynamics, and particularly the construction activity, we have created a ‘tech belt’ layer to our data.
The adjoining map and snapshot profile highlights the ‘tech belt’, an arching area that takes in northern parts of the City, reaching west to King’s Cross and eastwards towards Aldgate. Analysis of our Crane Survey database shows that 2015 and 2016 will deliver close to 2 million sq ft of new office space in this area, significantly above the annual average level of completions of 260,000 sq ft.
This survey shows that 0.5 million sq ft of office space has completed over the last six months, of which 81% of space was let prior to completion. Marginally lower, the current level of leasing activity on schemes under construction is running at 73%.
Whether the current ramping up of construction in this area is the result of a mixture of occupier demand, investor/developer focus, and a shortage of supply elsewhere. Further activity is expected over the next few years. A number of schemes feature in our Crane Survey forecasts and we expect the pace of development to continue.
London Office Crane Survey 21
Tech belt development snapshot
Average size of a scheme
247,250 sq ft
Which sectoris currentlytaking themost space?
Average size of a floor
18,845 sq ft
Number of cycle spacesbeing built
937
Tech belt office development pipeline
Number of new construction starts Total amount under construction
Total amount completed this survey
0.5 million sq ftacross 6 buildings
Total amount of space under construction which has been let
Million sq ft
Completed u/c available u/c let
0.0
0.5
1.0
1.5
201920182017201620152014201320122011201020092008200720062005200420032002
Today: 1.0 million sq ft
Today: 2.4 million sq ft
Lowest0 million sq ft (2010)
Highest1.4 million sq ft (2015)
2
1
Highest
Lowest10 year average
Today
73%let
0% 100%
TMT
5(2015)
0(2014)
22
Outlook
London Office Crane Survey 23
OutlookThe next five years
Overview• The erosion of available office space continued
throughout 2015, exacerbated by low levels of new supply and a high level of letting on completed space.
• Adding to the high volume of office space started in our last survey, the wave of new starts recorded in this survey will go some way towards alleviating the current shortage of Grade A space.
• Indeed, the past six months has seen the pipeline for 2016 bolstered by a further 1 million sq ft.
• In the short-term however, we still envisage a shortage of supply. We expect that tenants will continue to seek pre-completion lettings to secure space, reducing the amount becoming available to the market and, therefore rental levels could still be subject to further upward pressure.
• We see this enticing developers to start further developments. Our analysis of future schemes not yet under construction shows that delivery of space in 2017-19 may exceed the long-run average and act to slow rental growth in these years.
• However, we are also mindful of potential capacity constraints that could affect the timing or cost of delivery of some schemes in the pipeline.
AverageGrade Atake-up
Central London development pipelineMillion sq ft
Source: Deloitte Real Estate
0
2
4
6
8
10
Completed u/c available u/c let
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
24
The occupier market remains activeTake-up in central London in 2014 was the highest in eight years, and whilst leasing activity in 2015 has not quite matched it, demand remains reasonable. In the first three quarters of the year, the volume of Grade A space taken was slightly below the 10-year average, but with several schemes under offer, it could move above by the end of the year.
Central London availability continues to slideAt the end of Q3 the availability ratio had reached its lowest level in 14 years at 3.9%, with notable drops in the Southbank, Docklands and City markets.
New supply this year has done little to improve availability: the latest Crane Survey shows that over two thirds of space completed in the last six months had already been let. As we predicted in 2013, both pre-letting and early-letting activity on future space would temper the amount of new space actually hitting the market. Consequently, some tenants are seeking pre-completion lettings to secure space for requirements that may not be due for a number of years. Given the low volume of space delivered in this Crane Survey, we expect these dynamics to continue in the short term, and occupier choice to remain constrained.
0
5
10
15
20
25
30
Grade A Secondhand
Central London availability levels by gradeMillion sq ft
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Q3
London Office Crane Survey 25
Shift in occupiers leasing spaceThe latest Deloitte CFO Survey points to a hardening of sentiment towards corporate expansion and capital expenditure, which could trickle through to leasing decisions on new space. Our research shows that this has not yet been the case, with letting activity increasing on new space, both completed and under construction. Indeed, the results of the Crane Survey show that while firms may be using office moves as a means to consolidate various sites, in the process they are also taking more space, as they factor in room for growth.
Nevertheless, we are seeing a shift in the type of businesses seeking to occupy new office space in London. The financial sector is in a period of far-reaching and fundamental change, as we explored in our recent report London Business Footprint: The evolving financial sector. On the other hand, the TMT sector has gone from strength to strength since the financial crisis. According to recent data from London & Partners (the Mayor of London’s investment company), investors have invested £1bn into London’s tech sector in 2015. The FinTech (financial technology) sector has raised £362 million this year. Technology has become a driving component of recent economic growth and as such we expect this sector to remain a leading occupier for office space.
How much will be delivered from current construction?The increase in construction activity recorded in our latest survey is now starting to reshape the delivery pipeline, particularly for 2016. Whilst the volume of space under construction has increased, so too has the level of letting activity on this space – 38% is already let since our last survey.
There is still only a single scheme due for completion in both 2018 and 2019, but this is unlikely to remain the case for much longer. A number of factors currently at play suggest that our next Crane Survey could see a further significant uplift in activity.
Completed u/c available u/c let Agreed let not yet started
Average annual deliveryForecast speculative Forecast pre-let
Source: Deloitte Real Estate
0
2
4
6
8
10
12
14
16
Central London development pipeline forecastMillion sq ft
1990
1991
1992
1993
1994
1985
1986
1987
1988
1989
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
26
Rising demolition clears the way for constructionIn the past few surveys we have reported on the level of demolition activity that has been taking place, and have used this as an indicator of future construction starts. The amount of space under demolition has consistently hovered around the 5 million sq ft mark, but in this survey we have seen a 25% increase, taking the total volume of space being prepared to over 6 million sq ft.
The findings are also supported by recent data on construction contracts from the Office of National Statistics. This shows that the volume of contracts awarded for new commercial construction in London has been increasing since 2014, with early indications showing that this rise continued through into Q3 2015. There is a relatively strong correlation between this data and our own data on new construction starts (when lagged by nine months).
Neither the rise in demolition activity nor the increase in construction contracts are absolute guarantees of a further uplift in new starts. Taken together, however, they certainly support our expectation of a sustained rise in new starts over the coming year.
Developers continue to target 2018-19 for deliveryOur current Crane Survey results have shown that some schemes under construction and originally due to complete in 2015 are now drifting into early 2016. The same can be said for those schemes that have yet to start. Our analysis of the future pipeline shows that the outlook for development has shifted somewhat.
The amount of space predicted to be delivered in the latter years of our forecast remains above the long-term average - 2018 could see the highest volume of space delivered since 1992. However, it is our forecast for 2019 that has increased more significantly since our last survey. This is partly due to changing delivery dates, but also to the inclusion of new schemes. Similarly, schemes that require a pre-let could affect the pipeline as completion dates on these developments will be more flexible.
Our data shows that 1.5 million sq ft of space has already been let but has yet to start construction. This is a something that we will continue to see as our forecast period starts to extend and tenants look further out to secure the right type of space.
It is worth noting that the supply of future space continues to differ between markets with increased levels delivered sooner in the West End, whereas in the City it will come later in the forecast period.
Demolition levels have increased by
since our last Crane Survey to
25% 6.4million sq ft
London Office Crane Survey 27
Rising rents outside of core areas A consequence of reduced availability has been strong rental growth that has not just been confined to the core submarkets of Mayfair and the City. Over the past year, offices in postcodes such as E1 and N1 have recorded double-digit growth. When looking over the past five years, growth in these postcodes turns to triple figures. Areas once thought as fringe have seen the strongest rental growth.
Our data shows that developers have recognised this, with the list of potential new developments extending far beyond the traditional core markets.
Mayfair/ St James
North of Oxford Street
Soho Victoria Covent Garden
King’s Cross
Midtown City E1 N1 Canary Wharf
Southbank
Annual change 13% 0% 6% 3% 7% 19% 0% 3% 43% 25% 4% 18%
5-year change 53% 64% 55% 39% 45% 70% 21% 17% 150% 155% 10% 48%
Central London prime rental change by submarket: Q3 2015
A good example of this is the ‘tech belt’ – an area that skirts around the traditional core of the City, covering an area from Pentonville Road in the west to Brick Lane in the east. Tenant demand has led to greater leasing, and increasingly, new developments. Current construction activity in the ‘tech belt’ is buoyant, so much so that 2015-2016 will see the highest level of new space delivered for over 13 years. The volume of space expected in 2016 is four times the average usually delivered, yet almost three quarters of the space is already let. What’s more, there is significant scope for further development to take place in this area, with our database showing schemes that could deliver a potential two million sq ft of space by 2019.
28
2017 rateable values are getting closerIn addition to higher rents, the delayed rating revaluation now due in 2017 (based on April 2015 valuations) could well have a further impact on the operating costs of some office occupiers. The last valuation date for rating purposes was 2008 and the average increase in submarket rents in the period up to Q2 2015 has been almost 50%, so some businesses could well expect substantial rate rises from 2017.
This will be an important consideration for tenants that have active requirements for new space, and could shift the focus of their search more towards better value locations. In turn, this could be a further trigger for businesses to move between submarkets – something that we have increasingly seen in recent years.
Capacity constraints could impact the speed of deliveryIn addition to understanding when the volume of space completed might peak, we can also use our data to gauge the point at which the volume of space actually under construction could peak. This is important because our pipeline suggests construction activity could rise significantly over the next 12 months, and exceed highs last seen in 2008.
This development will in part, however, depend on the ability of the construction industry to meet demand. Contractors reduced their capacity during the economic downturn, and some have been slow to rebuild it. This is already part of the reason that some schemes are being delayed, even before the increase in office construction that we predict has started to kick in. Meanwhile, London is seeing higher levels of development activity in the residential sector and on infrastructure projects, diverting capacity from the office sector. Labour pressures could emerge both for skilled trades as well as white-collar roles.
Of course, many developers will have secured contractors for their future schemes, or be in the process of doing so, and thus removing this risk. And there is still time for contractors to raise capacity, as our data suggests the peak of construction activity will not be reached until 2017. Nevertheless, we are mindful of the potential for short-term capacity constraints to affect the cost or timing of some future developments.
London Office Crane Survey 29
Developing at the right time, in the right locationThe past six months have seen a further increase in construction, with activity rivalling levels last seen in 2009. Our forecasts suggest that the coming year could see construction activity rise still further, with both 2018 and 2019 now potentially delivering significant volumes of space. Nevertheless, with the amount of space currently under construction and due for completion in these years still low, there could be a first-mover advantage to be shared amongst developers that are able to commence projects imminently.
As ever, the debate is whether the future supply will be either more or less than tenants demand. Our view is that this question really needs to be considered in terms of submarkets or even individual streets, such are the nuances of the different parts of the central London market. Indeed, tenants’ more flexible attitudes to the locations they will consider only reinforces this. Yet in aggregate, we believe that our current projections would not yet constitute a significant oversupply – a view supported by the extremely low levels of current availability and the high degree of pre-completion lettings.
The bigger picture, however, is that London remains an unrivalled attraction for global businesses. As we have discussed in detail in previous Crane Surveys, our research shows that it is home to the greatest number of high-skilled employees in the world, many of whom are working in parts of the economy in which London is a world leader, such as TMT and FinTech. Within Europe, London plays host to the highest number of corporate headquarters by far. Perhaps most importantly, London remains a location that is keeping abreast of change be it through infrastructure, growing business diversity or even office development.
Development table
30
London Office Crane Survey 31
Development table
No.
Scheme
Post code
Developer
Tenant
Completion date
Total space sq ft
Space available
sq ftCity Under Construction 1 20 St Dunstan’s Hill EC3 Forum Partners/Office Space in Town Office Space In Town Q4 2015 75,000 –2 4 Fore Street EC2 The Salters’ Company The Salters’ Company, Undisclosed tenant Q4 2015 50,000 –3 8 Finsbury Circus EC2 Mitsubishi Estate Company/Stanhope Q1 2016 170,000 170,0004 Sutton Yard EC1 East City Investments Q1 2016 75,000 75,0005 9-10 Philpot Lane EC3 One Re One Re Q1 2016 18,300 –
6 1 King William Street EC4 Nippon Telegraph and Telephone Corporation/Kajima Europe
Q2 2016 102,000 102,000
7 The Monument Building ,11-19 Monument Street
EC3 Skanska Q2 2016 94,000 94,000
8 White Collar Factory, Old Street Yard EC1 Derwent London The Office Group, AKTII, BGL Group Q3 2016 276,000 192,0009 45 Cannon Street EC4 Morgan Capital Partners LLP Q3 2016 88,500 88,50010 Seventy Wilson, 70 Wilson Street EC2 Columbia Threadneedle/Stanhope/
Low Carbon WorkplaceQ3 2016 70,000 70,000
11 One Puddle Dock EC4 Network Rail Q3 2016 60,000 60,00012 108 Cannon Street EC4 Beltane Asset Management/
M&G Real EstateQ3 2016 40,000 40,000
13 69 Carter Lane EC4 Columbia Threadneedle/Stanhope/ Low Carbon Workplace
Q3 2016 30,000 30,000
14 Principal Place, Shoreditch High Street E1 Brookfield Amazon Q4 2016 607,000 –15 Angel Court EC2 Mitsui Fudosan/Stanhope Q4 2016 300,000 300,00016 One Creechuch Place EC3 Helical Bar/HOOP/City of London
CorporationQ4 2016 273,000 273,000
17 Cannon Green House, Bush Lane EC4 Ocubis Q4 2016 80,000 80,00018 Alderman's House, 117-121 Bishopsgate EC2 Amsprop Q4 2016 65,000 65,000 19 21 Lime Street EC3 City of London Corporation Q4 2016 35,000 35,000 20 1 Aylesbury Street EC1 Meritcape Alexander McQueen Q4 2016 31,000 – 21 Bloomberg Place EC4 Bloomberg/Stanhope Bloomberg Q1 2017 669,000 – 22 33 Central, 33 King William Street EC4 HB Reavis Q1 2017 225,000 225,000 23 2 London Wall Place EC2 Brookfield/Oxford Properties Cleary Gottlieb Steen & Hamilton Q1 2017 177,000 117,000 24 24 King William Street EC4 Beltane Asset Management/Angelo Gordon Q1 2017 71,500 71,500 25 Dixon House, 72-75 Fenchurch Street EC3 Greenoak Real Estate Q1 2017 42,000 42,000
26 52-54 Lime Street & 27 Leadenhall Street (The Scalpel)
EC3 WRBC Development WR Berkeley Q2 2017 386,000 310,000
27 1 London Wall Place EC2 Brookfield/Oxford Properties Schroders Q2 2017 309,000 – 28 10 Fenchurch Avenue (120 Fenchurch Street) EC3 Generali Real Estate/Greycoat/CORE M&G Investments Q4 2017 399,000 76,000 29 100 Bishopsgate EC3 Brookfield Q3 2018 867,000 867,000
Total 5,685,300 3,383,000 City Completed 30 Alphabeta, 14 Finsbury Square EC2 Resolution Property SEI Investments, Silicon Valley Bank, We Are
Social, Maxus Global, Opentable, Mendeley, Virtual 1, Huckletree
Q2 2015 220,000 –
31 2 New Ludgate EC4 Land Securities Mizuho Q2 2015 195,000 – 32 1 New Ludgate EC4 Land Securities Ropes & Gray, Commonwealth Bank of
Australia, ZS AssociatesQ2 2015 154,000 26,000
33 C Space (Maple House, 37-45 City Road) EC1 Helical Bar DLKW Q2 2015 62,000 15,700 34 The Studio, The Bower, 211 Old Street EC1 Helical Bar/Crosstree Real Estate Partners John Brown Media Q2 2015 19,000 – 35 The Warehouse, The Bower, 211 Old Street EC1 Helical Bar/Crosstree Real Estate Partners Farfetch.com, CBS Interactive, Allegis Q3 2015 130,000 12,500 36 99 Clifton Street EC2 Helical Bar/UBS Triton Property Q3 2015 45,000 45,000 37 122 Back Church Lane E1 Boultbee Brooks Ltd Q3 2015 24,000 24,000
Total 849,000 123,200
Red texts indicates a new start
32
Development table
Red texts indicates a new start
No.
Scheme
Post code
Developer
Tenant
Completion date
Total space sq ft
Space available
sq ftWest End under construction38 Zig Zag Building, Victoria Street SW1 Land Securities Jupiter Asset Management Q4 2015 188,000 132,000 39 Curtis Green Building, Victoria
EmbankmentSW1 Metropolitan Police Metropolitan Police Q4 2015 150,000 –
40 1-2 Welbeck Street W1 Aberdeen Asset Management Q4 2015 70,000 70,000 41 127 Sloane Street SW1 The Cadogan Estate Marshall Wace Q4 2015 45,000 – 42 Yalding House, 152 Great Portland Street W1 British Land Q4 2015 23,000 23,000 43 1 St James's Market, Regent Street SW1 The Crown Estate/Oxford Properties Q1 2016 144,000 144,000 44 1 New Burlington Place W1 The Crown Estate/NBIM/Exemplar Davidson Kempner Capital Management Q1 2016 79,000 62,000 45 2 St James's Market, Haymarket SW1 The Crown Estate/Oxford Properties Q1 2016 67,000 67,000 46 48-49 Pall Mall SW1 SFL1 (Qatar National Bank) Q1 2016 32,000 32,000 47 51-52 Welbeck Street W1 Howard de Walden Estates Q1 2016 17,000 17,000 48 25 Bury Street SW1 The Crown Estate Q1 2016 12,000 12,000 49 Nova South SW1 Land Securities Advent International, Egon Zehnder Q2 2016 296,000 246,000 50 Colegrave House, 70 Berners Street W1 Arcadia Arcadia Q2 2016 155,000 – 51 64-66 Wigmore Street W1 Howard de Walden Estates Q2 2016 55,000 55,000 52 Clarges House, 6-12 Clarges Street, and
82-84 PiccadillyW1 British Land Q2 2016 48,000 48,000
53 Verde SW1 (Eland House, Bressenden Place)
SW1 Tishman Speyer Q3 2016 281,000 281,000
54 Nova North SW1 Land Securities Q3 2016 184,000 184,000 55 30 Broadwick Street W1 Great Portland Estates Q3 2016 87,000 87,000 56 11-12 Hanover Square W1 Aviva Investors Q3 2016 40,000 40,000 57 15-18 Rathbone Place W1 Royal London Asset Management Q3 2016 28,000 28,000 58 Rathbone Square, 35-50 Rathbone Place W1 Great Portland Estates Facebook Q1 2017 216,000 – 59 7-10 Hanover Square W1 Morgan Capital Partners LLP Undisclosed tenant Q1 2017 71,500 15,500 60 1 Dean Street W1 Great Portland Estates Q2 2017 42,500 42,500 61 The Copyright Building, 30 Berners Street W1 Derwent London Q3 2017 85,000 85,000
Total 2,416,000 1,671,000 West End Completed 62 24 Savile Row W1 Terrace Hill/Aerium DSQUARED2 Q2 2015 25,000 18,000 63 11 Soho Street W1 Dukelease Properties/British Airways
Pension TrustSt Ives Q2 2015 14,000 7,000
64 33 Great Portland Street W1 Harmsworth Pooled Property Unit Trust Undisclosed owner occupier Q2 2015 11,000 – 65 91 Wimpole Street W1 Lazari Investments Q3 2015 57,000 57,000 66 7 Air Street W1 The Crown Estate/NBIM Q3 2015 47,000 47,000 67 21 Glasshouse Street W1 The Crown Estate/NBIM Undisclosed tenant Q3 2015 26,000 – 68 55 St James's Street SW1 Lothbury Investment Managers Vision Capital Q3 2015 25,000 20,000 69 30 Market Place W1 CBRE Global Investors Q3 2015 20,000 20,000 70 34-36 Bruton Street W1 Lancer Property Management William & Son Q3 2015 13,000 – 71 41-42 Welbeck Street W1 Howard de Walden Estates Q3 2015 12,000 12,000
Total 250,000 181,000 Docklands Under Construction 72 1 Bank Street E14 Canary Wharf Société Générale Q1 2019 688,000 408,000 Total 688,000 408,000Docklands Completed
Total 0 0
London Office Crane Survey 33
Development table
Red texts indicates a new start
No.
Scheme
Post code
Developer
Tenant
Completion date
Total space sq ft
Space available
sq ftKing's Cross Under Construction 73 Pivotal, 123 Pentonville Road N1 Monteagle Barlow Trust Ltd Houzz Q1 2016 26,000 – 74 Lighthouse, 283-297 Pentonville Road N1 UK Real Estate Ltd Q1 2016 16,500 16,500 75 Three Pancras Square N1C King's Cross Central Limited Partnership HAVAS Q2 2016 163,000 – 76 Four Pancras Square N1C King's Cross Central Limited Partnership Universal Music Q2 2017 170,000 – 77 R7 Handyside Street N1C King's Cross Central Limited Partnership Q2 2017 145,000 145,000
Total 520,500 161,500 King's Cross Completed Total 0 0Midtown Under Construction 78 12-14 New Fetter Lane EC4 Great Portland Estates Bird & Bird Q4 2015 142,500 – 79 77 Shaftesbury Avenue WC2 Dolford Property Holdings Bank of East Asia Q4 2015 59,000 47,000 80 Audit House, 58 Victoria Embankment EC4 FORE Partnership NESTA Q4 2015 48,000 – 81 Lacon House, 84 Theobalds Road WC1 Blackstone Q1 2016 215,000 215,000 82 Holborn Tower, 137-144 High Holborn WC1 Private overseas investor Q1 2016 25,000 25,000 83 Strand Bridge House, 138-142 Strand WC2 Banco de Oro Banco de Oro Q2 2016 21,000 –84 Bloomsbury Plaza, 2-8 Bloomsbury Street WC1 Friends Life Q2 2016 21,000 21,000 85 1 New Street Square EC4 Land Securities Deloitte Q3 2016 260,000 – 86 LSQ London, 48 Leicester Square WC2 Old Park Lane Management Q3 2016 95,000 95,000 87 98 Fetter Lane EC4 Blackstone/Morgan Capital Partners LLP Macfarlanes Q3 2016 59,500 – 88 28 Chancery lane EC4 Viridis Real Estate Q4 2016 100,000 100,000 89 The Cursitor Building, 35 Chancery Lane WC2 Aberdeen Asset Management and
Endurance Land Q4 2016 66,000 66,000
90 8 Salisbury Square EC4 Greycoat/Cheyne Capital Q1 2017 156,000 156,000 91 One Bedford Avenue/251-258 Tottenham
Court RoadWC1 Exemplar Properties Q1 2017 70,000 70,000
Total 1,338,000 795,000 Midtown Completed 92 Adelphi, 1-11 John Adam Street WC2 Blackstone ACCA Q3 2015 160,000 123,000 93 40 Chancery Lane WC2 Derwent London Publicis Groupe Q3 2015 97,000 –
Total 257,000 123,000 Paddington Under Construction 94 20 Eastbourne Terrace W2 Land Securities Q2 2016 93,000 93,000 95 4 Kingdom Street W2 British Land Q2 2017 132,000 132,000
Total 225,000 225,000 Paddington completed 0 0 Total 0 0Southbank Under Construction 96 South Bank Tower, Stamford Street SE1 Hermes/Canada Pension Fund Q2 2016 224,000 224,000 97 3 Valentine Place SE1 South Square/Gemaco Q3 2016 28,000 28,000
Total 252,000 252,000 Southbank Completed
0 0
Total 0 0
34
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London Office Crane Survey 35
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Definitions
Time period: April 2015 – September 2015
Size minimum: 10,000 sq ft
Construction type: New build construction or significant/comprehensive refurbishment – work to have started, demolition stages not included
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Notes
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Deloitte LLP is the United Kingdom member firm of DTTL.
This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.
© 2015 Deloitte LLP. All rights reserved.
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Designed and produced by The Creative Studio at Deloitte, London. J3211
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ContactsCity
Steve Johns Director 020 7303 [email protected]
West End
Rhodri PhillipsDirector020 7007 [email protected]
Occupiers
Chris LewisPartner020 7303 [email protected]
Author
Shaun DawsonResearch Manager020 7303 [email protected]
Investment
Jamie OlleyPartner020 7007 [email protected]
Will MatthewsHead of Real Estate Research020 7303 [email protected]
Author