Construction activity in the offices sector has fallen by more than three million square feet over the last year.
According to analysis by CoStar, office construction activity has fallen to its lowest level for a decade, as developers pause for breath amidst economic uncertainty and the persistently high cost of debt and construction.
The amount of office space under construction across the UK has fallen to around 23 million sq ft, the lowest since the beginning of 2015, as the UK recovered from the effects of the global financial crisis. This represents a little over one year’s worth of take-up of this grade of space, assuming the next 12 months experience similar levels of demand to last year. New development starts have fallen to the lowest level in more than 15 years, suggesting that construction levels are unlikely to rise significantly in the short term.
However, there are differences in construction activity across the UK’s major office markets.
Construction levels, measured against total office stock, in Oxford and Cambridge are the highest in the country, with developers keen to capitalise on the buoyant demand generated by university spin-offs and established innovation and technology companies. This is reflected in the recent news that Railpen has started the speculative construction of Botanic Place, its 330,000 sq ft office development in Cambridge. Some 1.8 million sq ft of office space is currently being built in the two cities, the equivalent of more than 5% of their combined office inventory.
More than 12 million sq ft of construction is currently under way in central London, the equivalent of almost 5% of the city’s office stock, with around 40% of this space is already pre-let. The largest speculative schemes under way include One North Quay, a life sciences R&D facility in Canary Wharf, which totals more than 800,000 sq ft, and 50 Fenchurch Street, where work has started on site on 650,000 sq ft of office space.
Conversely, little or no space is currently being built in Liverpool, Bristol or Glasgow. This should afford the cities’ most recent speculative new builds and refurbishment projects time to lease up, although once this happens, tenants will likely experience growing competition for the dwindling Grade A stock, according to CoStar.
Data from Gardiner & Theobald suggests that although material costs have eased somewhat and there are indications that input inflation is stabilising, tender prices continue to face upward pressure due to persistent labour shortages, increasing compliance expenses, and a more selective stance from contractors.
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