London Office Market Revives in Terms of Construction Despite Wider Economic Gloom

on Dec 4, 2012
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**London Office Development Up, but Tenant Demand Still Subdued**

According to Drivers Jonas Deloitte’s latest London Office Crane Survey released today, in the second half of the year, nine new office developments have started in the UK capital. The Times reported on 4 December 2012, citing the recent research by the property consultancy firm, that there is now a total of 4.1 million sq ft of space under construction, which is a 15 per cent increase on six months ago and the first time since 2009 when office construction in Central London has risen above the 4 million sq ft mark.

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While overall office construction in the City is up in the six-month period cited by the survey, new construction activity slowed in London’s West End, with only eight new starts, totalling 270,500 sq ft — the area’s lowest volume of new office space commencing in two years. Yet the total of 28 projects under development in the West End is up on the 23 recorded in the same period last year. The survey also showed that in 2013 the West End could deliver the highest amount of office space in three years, with 1.7 million sq ft due to be completed.

Drivers Jonas Deloitte’s head of research, Anthony Duggan, said: “Office development in Central London continues to fare well despite the wider economic malaise. This Crane Survey has shown that sentiment remains positive in the London office market. Increasing early-letting activity at schemes under construction adds further confidence and an endorsement of those that have made the decision to deliver in these uncertain times.” Yet Mr Duggan adds that “the reality is that wider tenant demand remains low… and, until macro economic uncertainties subside, it is unlikely that capital spending and hence demand for real estate will increase substantially.”

**Insurers Move into Void Created by Retreating Banks**
Matthew Elliott, partner and head of City agency at Drivers Jonas Deloitte, said: “The City is an interesting market at the moment. Banks, traditionally the mainstay of the market, are sitting on their hands, for understandable reasons. Some that could relocate are extending their leases for a few years rather than incur the considerable capital expenditure and lease commitment.”

!m[Survey Shows Office Tenant Demand in the City Remains Cloudy but with Few Bright Spots](/uploads/story/958/thumbs/pic1_inline.png)While banks retrench, however, London office development is partly being driven by a diversification of the tenant base of the City, with insurers and technology, media and telecommunications (TMT) companies taking over from banks as the main drivers of demand. According to Mr Elliott insurers and TMT firms are increasingly attracted by the “low cost and high quality of the buildings on offer.”
Insurers such as Ascot Underwriting, Markel and RSA Insurance Group have agreed pre-let deals recently to take space at the Walkie Talkie tower being developed by Canary Wharf Group and Land Securities (LON:LAND). Meanwhile, global insurer Aon has also signed a deal to take about a third of the “Cheesegrater” tower being built by Oxford Properties and British Land (LON:BLND).

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