Drivers Jonas - General - Central London Crane Survey

Date: 07 Nov 2005

Drivers Jonas has released its latest Central London Crane Survey. The results show another strong increase in speculative construction driven primarily by the property companies.

Key messages:

This latest Crane Survey has recorded a rise in total construction over the six month period to 7.26m sq ft - a rise of 17%. Importantly, the results show that the development of speculative space has risen again - up 41% following a similar increase in the previous half-year period.

The property companies are driving this development and account for 75% of construction activity in Central London by volume. Indeed, Land Securities alone accounts for a third of the total being built in London and are now building 1.2 million sq ft of speculative space including significant commitments in Southwark and Midtown. They remain conspicuous by their absence in the City although look set to start construction of 199,000 sq ft at 1 Wood Street following demolition.

Key findings:

Speculative construction has doubled in both Midtown and Southwark and is up 45% in the West End.

Limited new starts means construction is down in the City although demolition is underway on a number sites.

The list of expected imminent starts remains full with developer confidence improving.

Conditions in the City continue to improve and it is clear that the supply of new quality space is tightening. This will put rents under increasing pressure to rise but we need to see strong financial sector demand before we see real rental growth. The good news is that the banks are quietly absorbing their own 'grey' space so the pressure is building.

We have recorded rental growth in the West End with rents for the best space now at £70.00 per sq ft. This increase is due to the shortage of Grade A space in Mayfair and St James's. Furthermore because so few new buildings are being completed over the next twelve months we can expect more rental growth. This is good news for owners of grade B buildings in secondary locations as occupiers will have to compromise on quality to satisfy their space needs.

The four million sq ft of speculative space under construction and due to be delivered over the next three years looks acceptable given the improving market and the supply/demand balance. The developers that have started on site look to have got their timing right. In the main these are the more responsive property companies - the more conservative pension funds and institutions are, in many cases, still weighing up their options.

Matthew Elliott, Head of London Agency and Partner at Drivers Jonas, said:

"Developers who have started probably have the timing right but others can't quite bring themselves to book the piling rigs. These tend to be the more conservative pension funds and institutions, responsible for only a quarter of the construction. Many of these have large schemes which they could start. The danger is that they leave it too late, start simultaneously and bring too much to the market at the same time. Once again expect the property companies to steal a march over the funds."

Anthony Duggan, Drivers Jonas Research and Associate Partner at Drivers Jonas, said:

"Developers look to be picking the market right in terms of timing, size and location. Speculative development is moving ahead in the West End as supply tightens and the Fringe markets are attracting both strong developer and occupier interest. We are yet to see a strong return to speculative development in the City but expect to see further starts as the supply/demand balance continues to improve."

Where do I go now?: » View the latest news items » View the news archive » Subscribe to Weekly Construction Newsletter » Submit news