Although the latest Deloitte’s London Office Crane Survey indicates that there will be some reduction in demand, this is not as great as was first thought and the results of the survey will allay some of the developers’ worst fears of this time last year.
Having said that, the pandemic will have a substantial impact (up to 63% down) the report says, but it is now thought that the “working from home effect” is not going to be as great as it could have been.
Developers can see past the pandemic
Around 90% of the builders surveyed by Deloitte said they were more optimistic than they were just 6 months ago.
Deloitte’s respected survey and report, now in its 25th year, shows that work started on 3.4 million sq ft of new office space in London in the last 6 months, which is actually in excess of the long-run average for office construction which would be at 2.4 million sq ft.
Deloitte real estate director Mike Cracknell comments that among the developers,
“There’s a level of confidence. The volume of new starts points to the resilience of demand for offices as an asset class, in spite of the dramatic shift in working practices in response to the pandemic and months of home working.”
Given the greater number of speculative developments under way, it shows that developers are prepared to take more risk says Deloitte, and not only that, these developers are building bigger, with the average lot size increased by 28% above the long term average.
Accepting that long-term working patterns and office layouts may need to change post-pandemic, it is clear that developers are able to see past the (hopefully) short-term effects of the pandemic.
Mike Cracknell has said that the pandemic is influencing the design of new office space, which will no doubt be built to meet modern environmental standards, but outdoor terrace space, meeting spaces and modern ventilation systems will feature as well.
The property industry is waking up to the need to meet environmental targets for the future and they realise that they may as well invest now to reduce the environmental impact of their new developments.
One factor in play is the trend to refurbish existing space with over half (54%) of new office space now coming from a refurbished shell.
Real estate valuation lead at Deloitte, Philip Parnell, has said:
“The focus on refurbishment over redevelopment is unlikely to diminish as carbon accounting, including embodied carbon and the drive to net zero, continues to gather momentum”
The report indicates that around one-quarter of the developers in the survey intend that all of their new developments will be net zero as early as 2024 and nearly 50% think this will be achieved by 2029.
During the survey period (April to September), around 13 million sq ft of office space, new schemes and refurbishment projects, was under development in London, a figure that is well above the long-term average of 10.7million sq ft, according to Deloitte.