Office construction pipeline boosted by major approvals

Office construction is showing renewed strength after a sharp rise in planning approvals, with demand for Grade A space and major data centre developments helping to expand the pipeline of future work.

The July edition of the Glenigan Construction Review shows that whilst new starts in the sector remain subdued, detailed planning approvals for new office projects more than doubled (up by 107%) in the April-June quarter, compared to the period a year earlier.

The pipeline of new office construction work is set to benefit from a surge in approvals for major schemes valued at over £100 million, notably in London and including some large data centre schemes. Overall, approvals for major schemes were worth £3.83 billion in the three months to June, a 149% increase on a year earlier.

But there have also been spectacular rises in approvals for medium-sized office projects (worth £50-100 million) in various regional markets, including Yorkshire & Humber, the East Midlands, East of England, South East and South West.

London remains easily the largest UK office development market in the UK. Office starts in the capital were worth £867 million in the second quarter, and the value of new office approvals was up 22% on the period a year earlier.

Shortage of prime space

A shortage of Grade A prime space and the need for energy efficiency remain key drivers of new office development in the capital and elsewhere.

Recent research from Savills noted that in the first quarter of this year Grade A office space accounted for 92% of office take-up in central London in the first quarter. In all, some 2.2 million sq ft of offices were leased across central London, up 6% on a year earlier, and which, according to the agent: ‘…reflected sustained levels of occupier optimism currently evident in the market.’

The research also points to a continuing shift towards refurbishments, which account for 70 per cent of the schemes set for delivery over the next four years.

Glenigan data highlights numerous major London office projects in the pipeline. These include a £150 million office refurb/conversion at 10 Victoria Street where tenders are currently invited, and work is due to start next year (Project ID: 25266595).

Across town in the City of London, tenders have been returned, and work is due to start later this summer on an £85 million office and visitor centre project at Fayners House in Monument Street (pictured) for client Classpremium (Project ID: 24200685).

Meanwhile, major data centre projects in the pipeline in the capital include the £750 million Bidder Street project in Newham where Blue Sky Building has recently been appointed contract manager, and work is set to start this autumn (Project ID: 22299265).

Potential in the regions

As in the capital, prime Grade A space offers the most potential for new office developments in the regions.

A recent review of the regional office market by Savills showed that in the first quarter of this year, Grade A and Prime space accounted for 65% of the total take-up in the so-called ‘big six’ regional office markets: Birmingham, Bristol, Manchester, Glasgow, Leeds and Edinburgh.

Some dramatic signs of an improving pipeline for new office projects and opportunities for new work outside the capital have emerged recently.

The East of England saw a dramatic, 36-fold rise in the value of underlying planning approvals in the second quarter. Meanwhile, the East Midlands saw approvals for new office projects in the second quarter rise more than 12-fold on a year earlier.

Further north in Yorkshire & the Humber, office approvals rose 11-fold (1060%) in the second quarter compared to a year earlier. Significant office schemes which have recently got underway in Leeds include a £60 million office extension at 31 Wellington Street for Asset Capital (Project ID: 23071319) and a £45 million office refurb at Princes Exchange for Network Rail (Project ID: 25584290).

Meanwhile, in the South West, planning approvals for new office schemes in the first quarter were up more than six-fold (501%) on the period a year earlier. One office refurb/extension scheme in the region where detailed plans have been submitted and a contract has been awarded is the £49.4 million Capability Centre in Plymouth’s Royal Parade (Project ID: 26395412).