The pace of growth has been supported by a strong and accelerating rise in new orders since 2004 with increases of more than 30 per cent in 2006 and 2007.
Since mid-2005, this has begun to translate into a rise in the volume of new floorspace under construction and it has been estimated that in the key Central London market, the volume has trebled over the last three years to 13.3 million sq ft.
The increased demand has, in part, been driven by a buoyant financial services sector with record City profits and increased employment.
However, these earlier expectations, and the flow of new office projects currently in planning and design, are now vulnerable to the current crisis in credit markets and the prospect of retrenchment in the financial services sector.
City firms are currently reported to be reconsidering their future accommodation requirements and are more likely to be reducing rather than increasing staffing levels.
In addition, the credit squeeze has restricted developers’ access to funding for new projects and where funding is available the cost of borrowing has increased substantially.
The pace of growth is likely to slacken somewhat during 2008, with output forecast to grow by less than half of this rate.
Longer term prospects for the sector have clearly deteriorated over the last six months.
But given the large number of projects that are already committed and progressing on site, even a protracted down turn in orders will take time to feed through to sector output, particularly given the relatively long construction phase of office projects.
M&E content of schemes means that the value of construction work is weighted towards the end of a project’s life. As a result, output is forecast to peak in 2009, before the decline in sector output is likely to gain momentum during the subsequent years as existing schemes reach completion.