I have just read the recently released Deloitte London Office Crane Survey, given all the noise currently emanating on the future of offices post COVID, there is not much revealed in the well researched survey that to my mind is altogether surprising. Here are my main takeaways for offices in London for landlords/developers:
Pre COVID office vacancy rates were historically low. The supply line for new build stock is low. The market should be able to absorb the increase in office supply in the short term. Never underestimate the national and global draw of London. The need for central office space will remain - what will change is the quality requirements of that space.
Economic uncertainty. Development by its nature is risky - there is now the added unknown of the increase of construction costs reflecting the potential lack availability of labour and materials. There is the extra risk for developers that going forward contractor tenders will exclude the impact of COVID related measures - if there is a second COVID spike and a reintroduction of lockdown measures a developer may be in a vulnerable space. As importantly what will be the tenant demand for space against a background where more of the workforce will be working from home and business balance sheets have taken a hammering?
Offices will remain essential as a forum for human interaction, the exchange of ideas and the building of business culture and working relationships. Occupiers will still want high quality, sustainable, "safe" office space. For businesses to thrive they need to attract the best talent - the statement that now candidates will not just interview the business but also the premises of that business is a pertinent one.
Short term (6-9 months) - as evidenced in the Survey with so much uncertainty there will be a steep decline in the commencement on site of new office schemes. Long term - the development of quality London offices will be back.
The London office development sector is in a funny place. Before the coronavirus pandemic, with Brexit apparently sorted, confidence surged and new development picked up. Today, occupiers aren’t abandoning the need to move entirely, but confidence among developers is on the floor.