24th May 2017
Office space construction continues despite lack of projected occupancyEmpty London office space is on the up despite Brexit departure fears. Developers are determined to continue with new construction despite fears over future demand.
The level of empty office space in London has increased over the past 15 months and is likely to rise again although potential for a post-Brexit business departure that could drive down rental values.
A slowdown in the take-up of pre-used office space and longer periods to close rental deals bumped up availability of space by 36% last year and a further 19% on the first quarter of this year, suggested a survey conducted by Deloitte. Developers are not letting the projected effects take over. They are continuing with new construction as planned that is expected to push annual delivery of London office space to its highest since 2003.
Shaun Dawson, real estate research manager at Deloitte, told Reuters “Developers are having to get on with developing buildings because we don't know what situation we're going to be in come 2019.”
Financial service firms are large occupiers of London offices. In order for them to offer their products across the bloc, they need a regulated subsidiary in the European Union member state. This could in turn, lead to jobs being moved out of the UK if the countries exit negotiations fail to secure continued access to the European single market.
The Deloitte survey showed that 3.9million sq ft of space was completed over the six months to 31st March. This is the highest amount of space delivered in Central London in a single survey since 2004. On top of that, 28 new construction projects were started in the same period, adding 3.2million sq ft into the development pipeline.
Mr Dawson said that the above average delivery of new space is expected to continue over the next 5 years, resulting in levels not seen since the early 1990s.
With a significant proportion of space under construction proceeding without guaranteed tenants, rental values could slip if demand is dented by Britain’s forthcoming departure from the EU. There may be a sign of revised thinking from developers that have planned projects in five or so years, with the planned completion of some schemes being put back to later years to limit supply.
“The problem you have is that it is pretty difficult to stop when you're so close to development. You have to have contracts in place and all the builders ... so it's pretty difficult to stop,” Mr Dawson said. “
(But over the longer term) developers are looking at when to develop schemes and into what year.”
By Louise Beevis
Source: The Independent