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London office starts grow but completions remain at record low

The amount of office space completed in central London this year will remain at a 25 year low, research suggests.

The Drivers Jonas Deloitte Crane survey said that just 2 million sq ft of office space will be finished this year, a similar amount to 2011, which was the lowest level for a quarter of a century.

However the research found the quantity of space under construction in the capital had grown from 7 million sq ft in the third quarter of last year to 9 million sq ft in the same period in 2012.

A quarter of the schemes were refurbishments and 24 per cent were let whilst under construction.

The survey found office construction in London remained static between the first and third quarter of the year, as 25 new starts were matched by a similar number of completions.

The amount of new office space begun in the City rose 15 per cent, going above 4 million sq ft for the first time since the start of 2009. But deferment of several schemes in 2009 and 2010 means that completions in the City this year are expected to be at their lowest for over 25 years, at around 718,000 sq ft.

The rise in new starts this year, however, will mean completions in 2013 and 2014 are projected to leap to 1.5 million and 2.3 million sq ft respectively.

The West End market had the lowest volume of new starts in two years with just eight beginning in the last six months. But the number of schemes under development rose from 23 to 28. Next year will see the largest amount of space completed for three years at 1.7 million sq ft.

The pipeline of committed London office schemes currently ends in 2014 but Drivers Jonas Deloitte said that some schemes could be about to join for 2015.

Anthony Duggan, partner and head of research at Drivers Jonas Deloitte, said it was “unlikely that capital spending and hence demand for real estate will increase substantially” in 2013.

He added:  “Positively for developers of London office space we expect the demand that will transact to continue to focus on new, efficient, appropriately specified, attractively designed and correctly priced real estate. 

We believe the volume of space under construction is ‘manageable’, i.e. not too high given the weak market conditions. However delivering the right product remains key and the market is likely to be unforgiving for substandard schemes.”

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