Okay, I know this sounds unlikely, but it’s true nonetheless: London is facing a worrying shortage of office space.
This, I suspect, may come as a bit of a surprise. Everyone with an internet connection will know that the capital is facing a housing crisis (if only because there’s a section of the media that talks of little else). But London's commercial property market seems to be thriving. There are huge new developments underway in places like Docklands and King's Cross, and the most visible change to the city over the last few years has been the growing number of skyscrapers dotting the skyline.
And yet, according to the ‘London Office Crane Survey’ published last week by Deloitte, "office space is likely to remain in short supply over the next two years". What gives?
One reason for the apparent disconnect is that the received wisdom that we're building a lot is just, well, wrong: office construction rates have actually been running at below their historical average for five years now. Okay, there are 230 skyscrapers on the cards – but the majority of these don’t have planning permission, and even if they go ahead, most will be residential. Basically, our perceptions are skewed by a few very visible projects.
But there's something else going on, too. While there's 9.2 million square feet of new office space currently under construction, another 4.5 million square feet is being demolished. This, notes Deloitte, is the equivalent of knocking down 7.6 Shards. Throw in an economic recovery, which means more businesses wanting more space, and thing are starting to get a little tight.
Eventually, the shortage should translate into a new wave of developments; that's likely to mean more skyscrapers, if only because of the eye-wateringly high cost of land. That, though, is some way off. This year will see a spike in the number of new buildings completed, but the lowest number of new starts since 2010; there's not much in the pipeline for next year either. All told, it’s likely to be 2017 before the current demolitions start to translate into a new wave of shiny new skyscrapers.
So for the immediate future, the main result of the shortage will be a rise in office rents. Already these are almost back to pre-recession levels, with a West End office now setting you back an average of £110.00 per square foot per year. Great if you own a building – not so great if you just want to rent one.
Here’s an infographic, summarising the report’s full findings.