Demand for London office space slowing after two years of strong growth

Demand for London office space slowing after two years of strong growth

Political uncertainty in the first part of this year has caused a slowdown in the take-up of office space in London, according to a survey by financial services giant Deloitte.

The biannual London Office Crane Survey conducted by the company’s real estate wing has found, in the words of director Michael Cracknell, “strong and sustained demand for office space in London” but also that “leasing take-up” in the first quarter of 2019 was “notably reduced”.

This suggests that “occupiers and investors are now delaying their decisions in the run-up to the UK’s EU departure,” Cracknell says, following two years in which demand for office space, at more than 13 million square feet, exceeded long-term averages despite expectations to the contrary.

The report describes the increase in office construction activity that took place after the 2016 EU referendum and during the run-up to the original departure date of March 2019 as “remarkable” in the circumstances and a demonstration of confidence in the London leasing market in the long term.

However, it adds that the delay of the leaving date, to the end of October at the latest,   raises the question of whether the recent slowdown in demand will continue and cause a related reduction in the level of office construction.

“Brexit uncertainty” was cited by 21 per cent of the developers surveyed by Deloitte as one of the biggest challenges they face, but it ranked third behind “lack of development sites” and “construction costs”, which were picked by 29 per cent.

Big commitments by leading international tech companies boosted the sector, notably a 611 square foot development for Facebook in King’s Cross. The report finds that nearly two-thirds of all the office developments started during the two year period it covers were new builds and the remainder, refurbishments. Nearly 40 per cent of the new builds were in King’s Cross. The City accounted for 21 per cent and “Midtown” – the Holborn and St Giles district – a further 14 per cent.

The Deloitte London Office Crane Survey can be read in full here.

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