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Another surge in London construction activity

Anthony Duggan, head of research, Drivers Jonas Deloitte, said: "While construction continues to rise in the core City and West End markets, our research also shows that activity has returned to King’s Cross and the Docklands, as well as a further increase in activity along the Southbank.

"This is a sign that developers feel that the low levels of construction (compared to historic trends) and lower building costs are compelling. Positively, pre-letting is again a feature of the market, which should be a key focus for those with appropriate sites.

"Despite the upbeat signs from the development data, the reality is that, for some types of offices, tenant demand remains slow. We do believe that significant opportunities exist; but get the product and/or location wrong and the pitfalls could be just as large.”

The survey shows a number of new refurbishment schemes. The resultant new starts with relatively short build times programmes has boosted the completion data for 2013 by an extra 1.1million sq ft. Refurbishments now account for 22% of the construction activity.

2013 is set to deliver 2.9m sq ft of available office space, with an average of 2.3m sq ft expected to be delivered annually over the next three years.

Matthew Elliott, head of London offices at Drivers Jonas Deloitte, said: "At first glance, these numbers would appear to be very light, with average Grade A take-up levels at around 5m sq ft per annum over the last 10 years, almost double the amount of space that is set to be delivered.

"However, occupier demand for Grade A space is declining; 2011 represented the lowest annual take-up in a decade. As a result, London now has a surplus of quality space waiting to be occupied, with 4m sq ft completed and vacant.

"It may not be the market we are used to but having cautious tenants and cautious developers makes for a balanced market. This new reality gives the market stability which tenants like and yet underpins rents, which comforts investors.

"I can’t remember a recession in which prime rents have held up and yet, by and large, this is what we are seeing.

"But the game could change quickly and probably to the detriment of tenants. It takes just weeks for a corporate to decide to relocate but two or three years to deliver a new building. If tenant demand increases then there won’t be enough new offices to go around. Some are starting to sense this but the economic climate is keeping tenants, developers and their bankers cautious."

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