London sees highest volume of office refurb schemes, Deloitte says
With a total of over 10 million sq ft now projected to complete, 2023 looks to be on track to catch-up with many long-delayed completions
London has seen a record volume of office refurbishment starts comprising 37 schemes covering 3.2 million sq ft, according to Deloitte’s Summer 2023 London Office Crane Survey.
This is the highest number and volume of refurbishment starts since Deloitte began tracking them across the seven central submarkets in 2005. The increase has been driven by a need to reach the anticipated Minimum Energy Efficiency Standard (MEES) regulations to achieve Energy Performance Certificate (EPC) B rating by 2030.
Sophie Allan, director in real assets advisory at Deloitte, said: “Developers seem to be cautiously optimistic about the future of London’s development pipeline. Positive signs include a huge increase in the volume of new starts compared to the previous survey, and the highest volume of refurbishment starts on record, as developers race to avoid obsolescence.
“New infrastructure and expanding transport links have attracted people to previously overlooked areas like midtown and the eastern fringes of the City. This is undoubtedly a vote of confidence in London after the intense disruption of the pandemic, disturbance to supply chains and rising inflation experienced over the past year.”
According to the survey, new office starts have risen by almost 80%. Volume is now at 4.4 million sq ft and new construction is starting across 50 schemes. Since the last survey in Winter 2022, the average new scheme size has risen from 79,000 sq ft to 88,000 sq ft.
West End new starts are up for the second consecutive survey with the volume rising to 1.3 million sq ft, showing it is a market of increasing occupier focus. The City has instead dropped to just under 600,000 sq ft and has seen a steady decline in activity over the past few survey periods.
Margaret Doyle, chief insights officer for financial services and real estate at Deloitte, said: “Following pandemic-induced home working mandates, many businesses are now encouraging office attendance more proactively and are considering how to attract employees back to the office.
“Tenants’ shift toward quality over quantity has led to desire for attractive, sustainable, well-kitted out space, close to transport hubs and amenities. We expect that the need to bring offices up to scratch, especially in terms of energy efficiency, will drive London’s development for the rest of the decade.”
A total of 22 schemes, covering 3.6 million sq ft, that were previously estimated to complete within this survey period, have now pushed their estimated completion dates to the remaining three quarters of 2023. With a total of over 10 million sq ft now projected to complete, 2023 looks to be on track to catch-up with many long-delayed completions.
Allan said: “Whilst construction levels remain high, developers are acutely aware of elevated construction costs, which remains the biggest challenge, with both labour and material seen as major drivers.”