London office supply and demand surges ahead

The London office market is booming, with nearly 600 000 m2 due to be completed this year, double that of last year, according to a new report from project and cost consultancy Davis Langdon. The increasing demand follows the biggest rise in new-build construction activity in Britain in 2006, with London output increasing by 18% — £1.5 billion more than in 2005. Of the increase, 40% came from the private commercial sector, particularly offices. New orders for London offices increased by 48% in 2006 compared with the previous year, with the growth being maintained in 2007. Davis Langdon’s commercial office team is working on 800 000 m2 of office development in London, with a further 2 million square metres in the pipeline and explains that the growth is in response to demand for space as London’s service sector grows, with the amount of available office space in central London having declined since 2003 and rents risen since 2004. The surge in office activity has put pressure on contractors and subcontractors and resulted in price increases for developers and building clients. All construction work last year was hit by very high inflation in materials costs, and London office developments may have suffered more than most. Although a lot of new space is expected to come to the market in 2007, it is hoped that this will not presage an explosion in growth such as 1990/91, which was followed by a collapse and serious fall-out for the industry. Rising construction prices may also provide a check on development, with developers being forced to tailor the size and phasing of schemes to match the capacity of suppliers. Paul Allen, a partner in David Langdon office team for central London, comments, ‘The key question is judging at what points the opportunities coming through will stretch the capacity of the contracting industry to breaking point.’
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