Speculative office construction starts rise in central London, as developers bet on good future demand

A number of office construction projects have started in 2023  (PA)
A number of office construction projects have started in 2023 (PA)

Property developer confidence in central London's office market is looking solid, with new data showing speculative construction schemes are on the up.

As well as the latest research, a deal for a West End block completed in another sign that firms are looking optimistic about future occupier demand.

In 2023 to date firms have commenced construction on 51 schemes in central London with no guaranteed occupier in place, according to real estate consultancy Colliers. That is despite a challenging market.

The company said the latest developments collectively equate to 7.7 million sq ft due to deliver by the end of 2027 in central London.

The total amount of space is around 30% above the 10-year average for speculative development, it added. The research emerged as international real estate developers Edge and Mitsubishi Estate London Limited said they have completed the acquisition of 125 Shaftesbury Avenue.

No price was given for the purchase of the vacant 180,000 sq ft office building but a report in September by property magazine EG said a £150 million offer had been accepted.

The new owners said they will look to "deliver a modern, innovative workplace with sustainability and people’s wellbeing at its core".

Fons van Dorst, managing director UK at Edge said: “The need for healthy, sustainable, and smart buildings in accessible and vibrant locations is overdue in London."

Shinichi Kagitomi, managing director at Mitsubishi Estate London Limited said: “As long-term believers in the longevity and resilience of London’s office market, we are pleased to have made another acquisition and remain committed to growing our existing pipeline of developments projects across the capital."

The need for healthy, sustainable, and smart buildings in accessible and vibrant locations is overdue in London

Fons van Dorst, managing director UK at Edge

Property agents CBRE and Savills advised the vendor on the deal and Avison Young and JLL represented the purchaser.

While many employers are embracing hybrid working and some reducing space, landlords have reported good demand for modern and environmentally-friendly space in the City and West End that will appeal to staff.

Guy Grantham, director in the research and economics team at Colliers pointed to occupier appetite for new Grade A space being at a record levels.

But Tom Wildash, the firm's co-head of London leasing added: “Whilst the volume of demand for grade A space significantly outperforms the long-term average, this will present landlords of older and less attractive stock with challenges on how to reposition their assets to retain or attract occupiers against a backdrop of increased costs and planning scrutiny.”

London-listed firms on speculative projects include Derwent, which started demolition of Network in Fitzrovia at the end of 2022 and made the decision to commence the second phase – the construction part– in 2023.

GPE's 6/10 St Andrews Street scheme (GPE)
GPE's 6/10 St Andrews Street scheme (GPE)

Paul Williams, who leads Derwent London said: “We are seeing strong occupier demand across many sectors as evidenced by our 2023 pre-lettings at nearby 25 Baker Street. There is limited competing supply in the Fitzrovia area and more broadly across the West End. Occupiers are demanding high quality, green and amenity rich offices and are prepared to pay a good rent to secure the right premises."

Toby Courtauld is CEO of GPE, which put spades in the ground on its St Andrews Street scheme near Chancery Lane station in June.

He said: "With customers increasingly demanding the very best, sustainable spaces, and discounting the rest, they are competing in a market increasingly starved of new, grade A supply, putting upward pressure on prime rents and driving customers to secure space early, often well ahead of the building being completed."

Courtauld added: "Due to these supportive market conditions, we have been buying buildings for both our flex offerings and HQ development pipeline, and we are actively preparing our near-term development programme to allow us to commence the next round of projects in the new year.”