City of London office market tilts towards refurb projects

Aaron Morby 10 years ago

The number of office refurbishment projects is on the rise in the Capital as financial institutions move towards improving office space rather than into new buildings.

According to the latest Drivers Jonas Deloitte Crane Survey six out of the last nine major construction starts in the City were refurb projects.

Across London as a whole one in four big schemes are now refurb jobs bringing much-needed work to struggling fit-out specialists.

Since the Spring survey there have been 25 new starts across London, slightly down on the 34 recorded six months ago but maintaining at 9m sq ft the total office space now under construction in central London.

Anthony Duggan, partner and head of research at Drivers Jonas Deloitte, said: “At a market level The City has seen a further increase in construction while a number of development completions and a lower level of new starts have led to activity falling in the West End.

“Developers have been encouraged by increased letting activity among the schemes under construction with several schemes having achieved early-letting success over the last six months.”

In the City, nine schemes started bringing total space under construction to 4.1 million sq ft  – a 15% increase on six months ago and the first time construction has topped 4m sq ft since the first quarter of 2009.

The development profile of the City now shows just over half of the schemes as comprehensive refurbishments  – 14 out of 27 – the largest of which is QV Unit Trust’s 187,000 sq ft at 77 Queen Victoria Street.

While construction levels continue to increase, the decision to defer many scheme starts in 2009 and 2010 means that City completions remain low, with this year the lowest level for 25 years at 718,000 sq ft.

Looking forward, the recent rise in activity translates into higher levels of delivery in 2013, where 1.5m sq ft is scheduled to complete and a further jump in 2014 with 2.3m sq ft under construction.

Matthew Elliott, partner and head of City agency, said: “The City is a 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 capex and lease commitment. But as banks retrench so insurers are boldly moving into new buildings and paying high rents.

“We are seeing the early signs of a change in the City’s traditional tenant mix towards a more diverse range of occupiers.

“With a reduced appetite for huge trading floors, that can be provided more cheaply in Canary Wharf, and greater demand for high quality, well connected but sensibly priced offices we are confident about the future of the Square Mile as an attractive place for businesses.

“The continuing conversion to residential of buildings in the West End, Midtown and other districts will further strengthen the City’s appeal.”

DJD London Office Crane Survey Winter 2012 (2)

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