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London office construction up 18% but supply shortage looms

London office construction has climbed 18 per cent over the past six months but a near-term shortage of supply is imminent, according to Deloitte’s Winter Crane Survey.

According to Construction News, findings showed the volume of office space under construction had increased to 11.1m sq ft for the period, compared with 9.5m sq ft in the previous six months.

The survey said activity was now “comfortably above” the 10-year average of 9.2m sq ft and at its highest level since 2008.

The City and the West End accounted for the bulk of construction, with 73 per cent of activity falling within these areas.

There was also a growing number of new developments located in areas such as north Oxford Street, which the survey said correlated to the scheduled opening of Crossrail in 2018.

However, despite this increase in construction activity, the report’s findings indicated a shortage of supply in future, with the 3.3m sq ft of space completed in 2015 representing “the lowest amount for three years”.

Deloitte said this was exacerbated by strong letting activity on those schemes left to complete this year, reducing the amount available to just 32 per cent or 272,000 sq ft and placing further upward pressure on rents.

The survey also highlighted potential capacity constraints facing the industry, which it said could affect the timing and cost of delivery of some schemes in the pipeline.

Deloitte real estate head of research Will Matthews said: “Developers will be mindful of the fact that this rise in office construction comes at the same time as high levels of residential and infrastructure development, increasing competition for available construction capacity.  

“Ultimately the rise in office development recorded in our latest crane survey comes after five years of relatively low delivery, which has exacerbated the current shortage of available Grade A stock.

“This new space will not be completed for some time and we forecast further upward pressures on rental levels in the short term.”

Beyond 2015/16, the survey shows that only one scheme is due for completion in 2018/19 but it said this is “unlikely to remain the case for much longer”.

Meanwhile, demolition, which has consistently hovered around the 5m sq ft mark has risen by 25 per cent to 6.4m sq ft.

Coupled with data released by the Office for National Statistics, which showed that commercial construction has been increasing since 2014 and is likely to continue through into Q3 2015, the survey indicates a sustained increase in starts over the coming year.

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