The latest London Office Crane Survey from Deloitte says that while new construction starts are at their lowest ebb since 2010, the fact that 4.5 million square feet is being demolished or stripped out indicates a new wave will soon start, peaking again in 2017-18.
The survey, covering the six months to 31st March 2014, has calculated that there is 9.2 million sq ft of office space now under construction in the capital, although there have been only 15 new starts in the past six month.
The survey shows that the total volume of office space under construction in central London has fallen 5% since September 2013 despite the growing strength of the economy in the capital.
Deloitte does these surveys every six months. This is the fourth consecutive one to record a decline in available space under construction.
The report paints a picture of short-term supply constraints offset by underlying longer-term demand for space, with the next development cycle accelerating from 2016. Some 45% of space under construction is already let.
Deloitte says that the top three developers in London are Land Securities, Canary Wharf Group and British Land while the top three contractors are Mace, Canary Wharf Contractors and Sir Robert McAlpine.
Deloitte Real Estate head of research Anthony Duggan said: “The developers that initiated schemes at the first signs of economic recovery in 2011/12 are now reaping the rewards, as their schemes complete at a time of reducing availability, increased tenant demand, and rental growth.
“It’s difficult to see how we will avoid a squeeze on supply across central London, and over the next 12 to 18 months, the lack of choice for some occupiers is likely to drive more pre-letting activity.
“But our analysis of the longer-term outlook for supply suggests 2017 and 2018 could be the years in which delivery really starts to recover, as the current wave of demolitions begins to translate into completed schemes.”