London office construction: Refurbishments dip below new builds for the first time since 2020

The Winter 2024 edition of the Deloitte’s bi-annual London Office Crane Survey has highlighted a significant shift in London’s office construction market, revealing that, for the first time since early 2020, new build office projects have surpassed refurbishment starts, reflecting changing developer priorities amidst economic and geopolitical challenges.

Between April and September 2024, statistics showed that refurbishment activity dropped-off dramatically. Only 1.2 million square feet of refurbishment projects commenced across 18 schemes, a steep 57% decrease compared to the previous survey period. This marks a departure from recent trends, where refurbishment volumes consistently outpaced new builds.

This decline is likely influenced by a combination of economic uncertainty and global market pressures. Despite this, developers remain committed to addressing occupier demands, particularly for spaces with strong ESG (Environmental, Social, and Governance) credentials, indicating that this downturn may be less of a long-term trend, and more or a ‘blip’ in longer term projections.

New builds maintain momentum

During the same period, new office construction starts totalled 3.7 million square feet across 29 schemes – a 12% decline from the previous survey. However, this figure remains above the 10-year average of 3.4 million square feet, underscoring the resilience of new build activity despite broader market challenges.

Life science developments, which combine laboratory and office spaces, have emerged as key drivers of new activity, accounting for 35% of the total new build volume (1.3 million square feet). These projects have bolstered activity in submarkets like King’s Cross and Docklands, while other Central London areas saw a decline in starts. The City is a surprising exception, recording a 7% increase in new office construction.

However, this trend needs to be balanced against the current delays in delivery, as the survey only recorded the completion of 2.7 million square feet of office space across 35 schemes, falling 28% short of the 3.8 million square feet expected. These delays will have been a major contributing factor to the high levels of ongoing construction, which currently stand at a record 16.8 million square feet.

Developer sentiment remains positive

Despite the declines in both refurbishment and new build activity, the survey reflects strong optimism among developers. A parallel survey found that 92% of developers expect their pipelines to either grow or remain steady over the next six months, which is a stark contrast to two years ago when 55% anticipated reductions.

This renewed confidence is likely influenced by factors such as recent interest rate cuts and the easing of construction cost inflation, which may spur future activity and stabilise the market.

Outlook

The London office construction market continues to adapt to shifting economic conditions and evolving occupier requirements. While refurbishment activity has taken a temporary dip, the sustained demand for ESG-compliant spaces and the expansion of life science developments point to a resilient future. Developer optimism, coupled with stabilising costs, suggests that the declines seen in this survey could be short-lived, paving the way for a revitalised pipeline of office projects.