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Whilst the flow of new office projects remains extremely weak, market conditions have moved off the low point reached in the first half of 2009, according to Glenigan.

The take-up of central London office space improved considerably during the final six months of 2009 as occupier confidence strengthened, with the turnaround most noticeable in the City.

Against this background of firmer demand for office accommodation, the next two years will see a sharp fall in the volume of new floor space coming onto the market. This is set to support capital and rental growth as the supply of available floor space dwindles. This in turn should encourage developers to bring forward new developments. Whilst Glenigan expects the flow of new office projects starting on site to remain weak during the first six months of 2010, we anticipate project starts will gradually pick-up from the second half of this year onwards.

Looking forward, we expect sector starts to rebound in 2010. Based on projects currently in our database, we should see an uplift in the value of underlying construction starts by 17% in 2010, with a further 18% rise during 2011 (see table above). However, such an upturn would still leave the value of project starts some 48% adrift of 2007 levels. Furthermore, if there is a renewed weakening in economic conditions, the downside risks for the sector will increase.

Construction output, however, will lag behind the forecast improvement in project starts. At 3%, the decline in sector output was relatively modest during 2008. However, the absence of new project starts became an increasing drag upon sector output last year as work on site on existing schemes was completed.

Top contractors and clients in offices

Office starts

Source: Glenigan