The volume of office construction in central London has increased by 4% over the past six months to 14.8 million sq ft. This marks an eight-year high, according to the London Office Crane Survey Winter 2016.
The survey conducted by Deloitte Real Estate was established over 20 years ago. It tracks every office scheme under construction across central London. Additionally, it looks at potential delivery of space and its future impact.
The survey report was, however, not all good news. It showed that there was a slowdown in construction momentum. New office construction activity in the region had declined 42% from a year ago.
Work began on 40 new office developments over the past six months. While this added 2.8 million sq ft to the pipeline, the figures were much lower than the 4.8 million sq ft added across 51 new schemes in the previous six-month survey.
While the survey found that 41% of the space currently under construction had already been let, developers were concerned over future tenant demand. Deloitte said it forecast rising delivery in 2017 and 2018, but the peak had shifted to 2019-20. It also said that it expected rents to fall in 2017.
Another highlight was that there was subdued tenant demand for existing office space. Total volume to-date leased in 2016 was down 37% year-on-year. Vacancy rates at the end of the third quarter came in at 4.8%, higher than the 3.9% at the start of the year.
Tenant demand from the financial sector was relatively subdued and accounted for just 26% of leasing this year.
This follows various London-based banks warning previously that they could shift their operations outside the capital amid the uncertainty caused by the Brexit vote. HSBC was one such bank that had in February said it could shift 1,000 jobs from the capital to Paris, in the event UK decides to leave the EU.
Chris Lewis, head of occupier advisory at Deloitte Real Estate, said the reduction in tenancy was partly because of the referendum vote. "There is no doubt that Brexit has been a component of a general cautiousness among occupiers, but we are seeing with occupiers that these are quite uncertain times generally.
"Technology is affecting how they do business, and they are wrestling with the growing millennial population within their businesses. Then there are the French and German elections, the vote in the US and the possibility of an early election here [in the UK]," he was quoted as saying by the Financial Times.