The need to create new office space which helps firms limit rising energy costs and also appeals to employees who are increasingly inclined to work from home is helping to sustain new office construction activity, particularly in London.
The growth in new refurbishment and fit-out projects as firms adapt their space to hybrid working has been a significant driver of new office projects in the Capital. Recent Glenigan data shows that the value of underlying (under £100 million in value) new office project approvals in London is on course to exceed £1,700 million in 2022, up from just over £1,400 million last year.
The upturn in office construction in the Capital has also been a key factor behind the increase in overall activity in the sector. The latest Glenigan Construction Industry Forecast 2023-24 predicts that the total value of office starts will rise by 4% this year and a further 5% in 2023.
Large fit-out projects
Glenigan data highlights some of the large office fit-out projects getting underway in the City of London which are helping keep contractors in the sector busy. For example, an office fit-out at 280 Bishopsgate for law firm Baker McKenzie, where work got underway in August, is costed at £39 million. Mace Interiors is the fit-out contractor on the project where work is set to run until late next year (Project ID: 22318939).
As well as more refurb activity, there are signs some major new developments could be on the horizon in the Capital. Major publicly listed property companies have recently been selling existing buildings they own in the City and are planning to re-invest the proceeds in new energy-efficient office buildings where they see strong demand.
Land Securities, the largest quoted property group, recently sold its existing site at 21 Moorfields in the City for £809 million in line with its strategy to recycle capital out of mature London offices. Its pipeline is now focused on what it describes as a 1 million sq ft ‘green office cluster in the heart of central London’ and which involves four existing or potential developments in Southwark.
These include Timber Square, The Forge, where work is underway (Project ID: 16405057), Liberty of Southwark and Red Lion Court, a £100 million office building where detailed plans have been submitted (Project ID: 18423376).
In September, Landsec chief executive Mark Allan noted that a: “…healthy interest in our committed developments support our confidence in the outlook for the central London office market, even in the face of what is a challenging economic and geopolitical environment.”
Fellow quoted property group Great Portland Estates last month sold the freehold of the 50 Finsbury Square office development in the City for £190 million. At the same time, the company is undertaking a major new £250 million net zero office development of flexible space at 2 Aldermanbury Square at Bassinghall Street in the City. Demolition work at the site is underway and Landlease will start work as the main contractor next year. As well as new development and alterations involving over 30,000 sq m of floorspace, the scheme involves a garden space and a new walkway (Project ID: 21166709).
Meanwhile Great Portland chief executive Toby Courtland recently highlighted the group’s confident outlook pointing to the group’s long pipeline of developments and an: “…office market prospectively starved of new, grade A supply”.
The drive for office buildings to be energy-efficient will be reinforced by the introduction of new standards from next April requiring any office space being let to reach a minimum EPC rating of band E and band B by 2030.
Employers may also feel a growing obligation to provide more comfortable surroundings for their staff. Recently updated guidance from the British Council for Offices recommends that office workers should each have up to 12 sq m of space, up from a previous density of 10 sq m per person.
The task of creating less-crowded space for office workers should generate some major opportunities for new construction contracts.