Hopes of revival in London office construction
Published by Glenigan on 28th May 2019 -
A Spring bounce in new private commercial work has raised hopes that the beginnings of a revival in new office construction could be in prospect, particularly in London. It comes amidst encouraging signals from the largest quoted property groups on the outlook for development in the City.
London office construction saw a spectacular start to the year. Glenigan Construction market analysis shows that the value of new office starts in the capital rose by 47% in the first quarter, compared to the period a year earlier. This comes against a background of an improving picture nationally with new office starts up by 13% in the three months to April, compared to the period a year earlier.
The construction pipeline for new offices in the capital is also healthy. Office planning approvals in London rose 48% in the first quarter to £332 million and accounted for a quarter of office approvals nationally, according to Glenigan Construction data.
The mood amongst major developers in the capital is increasingly positive. Landsec, the largest quoted commercial property group, said earlier this month that it was increasing its focus on London with a growing pipeline. The group’s opportunities in the capital – in development, planning or feasibility - have increased to 3.6 million sq ft, on schemes with an estimated cost of £3 bn.
Encouraged by low levels of vacant Grade A office space in London, Landsecwill be starting construction work on 500,000 sq ft of speculative development this year. The group’s projects include Nova East, SW1, where it has recently started enabling works, and 105 Sumner St, SE1 which is set to start later this year.
Meanwhile, Grosvenor Group - one of the capital’s largest landowners - last month announced plans to invest £1billion in commercial property in London with new public spaces aimed at improving the appeal of the West End. After recent asset sales, the group says it has significant financial headroom to fund its £4bn development pipeline and make potential acquisitions.
Developers will have been encouraged by the continuing appetite for office space in the City. A recent report from Savills showed that the City office market continues to outperform expectations. Occupiers are coming to terms with drawn-out Brexit negotiations and committing to office space in the capital, particularly for smaller deals. There were 33 occupational deals in March alone, bringing the total for the year to date to 100, eight more than at this point last year.
Other trends also bode well for new development in the City of London. Rents remain firm and the 7.3 million sq ft of space taken up in the year to March was slightly above the five-year average. The vacancy rate of just 5.2%, is lower than a year earlier and below the long-term average.
As well as the start of construction work on the landmark £300 million office project at 6 Bishopsgate (Glenigan Project ID: 13347561), there are other major office projects in the capital’s short term pipeline.
Construction work is set to start later this spring on the £75 million IQL North, a 12 storey office project with retail in Stratford City Zone 4. Lendlease is the main contractor on the project which is at the reserved matters granted stage (Glenigan Project ID: 18390752).
Elsewhere, tenders have recently been returned on the £18 million Governors House fit out, a City office refurbishment project in EC4, where work is set to start later this summer and continue for five months (Glenigan Project ID: 19077420).