Central London Office Development - Savills
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UK Commercial – September 2021
S P OT L I G H T
Central London
Savills Research
Office Development
Development activity Office Demand Sustainability Pre-lets
Central London Offices - September 2021
Development completions are set to hit a
three year high by the end of the year
Development completions are set to hit a peak this year whilst
new starts show little sign of a significant fall
So far this year we have Whilst there is still much debate (180,459 sq ft).
continued to see high levels of about the longer term impact that
pent up demand as many occupiers hybrid models of working may In total, 19% of the 32.6 m sq ft
have continued to adopt a ‘wait have on office demand, almost half of the extensive refurbishments
and see’ approach with their of the pre-lets that have exchanged and new developments scheduled
5.5m sq ft of speculative
future office requirements. As this year are at least 2 years ahead for completion over the next 5
space is scheduled for delivery
this year
a result active Central London of their scheduled completion, years, have so far been pre-let.
requirements currently stand at illustrating the continued
10m sq ft, up 41% on the same importance occupiers attach to Peak levels of annual
period last year. the office. completions are expected over the
next 3 years with a record level
Almost half of the overall This strong appetite for newly of 7.5m sq ft currently scheduled
quantum of this space is made up developed product has led to high for delivery in 2023. Although
of occupiers with lease events into levels of developer confidence in there are pricing headwinds ahead
2023 and beyond, giving strong recent years and we are expecting particularly with rising building
indication we will continue to see development completions for this costs as a result of increased
occupiers considering pipeline year to hit a 3 year high, with 5.5m pricing on raw materials, and
options. sq ft scheduled for delivery by the lower productivity levels. This will
end of this year. Most notably, likely temper overall development
The continuation of strong development completions in the completions over the next few
demand for newly developed or West End are set to reach their years.
19%
extensively refurbished space, has highest level on record with 3.4m
resulted in pre-lets accounting for sq ft currently forecasted. The BCIS is currently
22% of space acquired since the forecasting building cost across
first lockdown in March 2020. Due to the prevalence of pre- the board will rise on average by
letting activity, 42% of this year’s 2.7% per annum between 2021 and
The increased polarization deliveries have been let prior to 2025. This along with the typical
between best in class space completion. Notable completions planning and construction delays
of the pipeline for the next 5 and Grade B space is further this year include Battersea Power will further reduce any potential
years (2021- 2025) has already illustrated by the fact that 88% of Station, SW8 (550,000 sq ft), 1 risks of oversupply despite the
been pre-let leasing activity over this period Portsoken Street, E1 (233,000 sq peak levels of activity anticipated.
has been of Grade A standard. ft) and 2 Gresham Street EC2,
Chart 1: Central London development pipeline
Complete Speculative Pre-Let Average completions
8.00
7.00
6.00
Million sq Ft
5.00
4.00
65% 3.00
2.00
1.00
of developments starts for this
year are extensive of schemes starting this year
refurbishments 0.00 are extensive refurbishments
Source; Savills Research
savills.com/research 1Central London Offices - September 2021
Pre-letting analysis Chart 2: Central London development starts
We have analysed our leasing Complete Average completions
data over the past five years
looking at occupiers who have 8,000,000.00
pre-let more than 10,000 sq ft
(excluding transactions to 7,000,000.00
Serviced Office Providers).
Since 2017, 37% of Central 6,000,000.00
London occupiers who pre-let
Million sq Ft
10,000 sq ft or more were 5,000,000.00
occupiers who were relocating
but taking at least an 4,000,000.00
additional 10,000 sq ft of
space. Over a third of these
3,000,000.00
occupiers took an additional
10-20,000 sq ft. 25% of these
occupiers took an additional 2,000,000.00
50,000 sq ft or more. The
average length of time for 1,000,000.00
occupiers taking additional
space,at their previous 0.00
address, was 11 years.
30% of the occupiers that have
pre-let space over the past 5
years were acquiring Source; Savills Research
additional space to their Continued developer confidence Almost two thirds (65%) of could potentially see, if we were
existing space or were new in the Central London office schemes starting this year are to see similar levels of demand for
entrants to Central London. market is further illustrated by extensive refurbishments, the this type of product return, this
the lack of a significant slump to majority of which are set to would equate to just over 7m sq
22% of occupiers who pre-let development starts for this year in complete by the end of 2022. ft of annual demand for Grade A
space over this period were
contrast with previous downturns. space.
relocating to similar sized
New starts are expected to be The City Fringe sub-market
space (10,000 sq ft more or
less). down by just 9% on the average accounts for 29% of this year’s At this rate of take-up the entire
annual level of starts we have seen new starts, followed by the City speculative pipeline for the next 5
Only 8% of pre-lets over the over the past 5 years. Core with 24%, and then by SE1 years equates to around 43 months
past 5 years have consisted of with 11%. of supply indicating that if similar
occupiers who were We are currently anticipating levels of demand were to return
downsizing. around 6.3m sq ft of new Over the past decade, prior to the potential risk of oversupply
developments and extensive Covid-19, average annual Grade of this type of product would be
refurbishments will start by the A take-up was typically around limited.
end of this year. This is up 5% on 8.4m sq ft. Accounting for a 15%
2020, where development starts reduction as a result of the fall in
were down 17% on 2019. the demand for office space we
12 Chart 3: Speculative completions 2021-2025 by sub-market
years White City
Victoria 3%
The average length of time for 7%
all relocating occupiers opting St James's
2% City Core
for pre-lets had been in Soho 25%
occupation at their previous 2%
location
SE1
14%
Paddington
2%
Oxford St North
(west)
3% City Fringe
Oxford St North 13%
(east)
30% 3% Covent Garden
5%
VNEB Hammersmith
2% Mayfair 1%
The Tech & Media sector 4% Midtown King's cross & Euston
accounts for 30% of the Knightsbridge 9% Kensington
4%
1% 1%
pre-lets that have completed
over the past 5 years Source; Savills Research
2Central London Offices - September 2021
Sustainable office development
The importance of sustainbility is set to remain high-up on the
agenda
There has been an increasing focus At present only 10% of schemes As more and more businesses
on the need to reduce the scheduled for delivery over the (including investors and
environmental footprint of next 5 years are currently occupiers) set their own net zero
commercial developments over targeting a BREEAM rating of carbon targets and consider their
recent years which has been Outstanding, a further 26% are wider sustainability objectives,
intensified by Covid-19. This focus targeting Excellent and 3% are there is increasing incentives for
on sustainability credentials has targeting Very Good. occupiers to consider how these
been driven by planning policies objectives can be achieved through
and changing expectations across Over half of the schemes that will their real estate decisions for
67% of pipeline schemes
the board from investors and be delivered over this period that example by targeting office
targeting a rating of Excellent
or Very Good are new
occupiers. are targeting a rating of schemes with measures that can
developments Outstanding or Excellent are in reduce/eliminate emissions.
Around 44% of this year's new either the City Core or City Fringe,
starts are known to be aiming to 17% are in SE1, and collectively, Around 45% (14.3m sq ft) of
achieve a BREEAM rating of Very West End sub-markets account for take-up since 2018 has been in
Good or above. 30% of this total. space with a BREEAM rating of
Excellent or above. At present just
Whilst the vast majority of Around 67% of schemes targeting 11m sq ft of speculatively available
schemes starting this year are a rating of Excellent or above are schemes in the pipeline are
speculative, when you look at the new developments, (as opposed to targeting a rating of Excellent or
space that has already been pre-let extensive refurbishments). This Outstanding, which equates to
a stronger preference for space in reflects the balancing act being 44% of all speculative deliveries.
buildings with good sustainability struck between sustainability This gives an indication
credentials is reflected by the fact considerations(for example, that future supply of this type of
that 82% of new starts (that have retaining the embodied carbon) product will most likely be
already been pre-let) are targeting and maximising the scheme/site outpaced by demand.
82% a BREEAM rating of Very Good or
above.
coverage.
of the 805,000 sq ft of this "Investors and occupiers are increasingly looking to refurbished properties over new build, amid
year's new starts that have
growing awareness of the embodied carbon impact of construction. New development remains
already been pre-let are
targeting a BREEAM rating of
necessary but, to compete, these must demonstrate that the improved efficiency they bring
Excellent or Outstanding delivers a whole-life carbon benefit, when compared to keeping an existing building in-use."
Chris Cummings, Director
Engineering & Design Consultancy
Chart 4: 2021-2025 Pipeline BREEAM targeting
Outstanding Excellent Very Good Other/TBC
25,000,000
20,000,000
10%
sq ft
of schemes schedules for 15,000,000
delivery over the next 5 years
are currently targeting
BREEAM rating out
Outstanding 10,000,000
5,000,000
0
Development Refurb
*TBC represents schemes that are yet to announce what rating they are targeting Source; Savills Research
savills.com/research 3Central London Offices - September 2021
Commercial development
Chart 5:Pipeline BREEAM Schemes targeting Outstanding or Excellent by
investment
sub-market (sq ft)
Investors generally want Covent Garden
the best of the best King's Cross 1%
Mayfair Oxford St North
developments featuring 1% 1% (east)
strong connectivity, 2%
Oxford St North
occupier resilience, with Other
(west)
the potential for the 1%
2%
highest ESG, amenity EC1
Paddington
and well-being 13%
4%
credentials.
St James's
Though, there are some 2%
pricing headwinds with Soho
construction cost 1%
EC2 Victoria
inflation starting to creep 19% 11%
in and continued
frustrations with Westminster
London’s planning 2%
system.
The prospects for the E1
EC3
rest of 2021 look 2%
16%
promising, as the upward
trajectory of occupier
confidence continues SE1 EC4
post lockdown. We are 13% 10%
currently tracking
approximately £1.25 bn of Source; Savills Research
stock available across
central London, with a
Going beyond ....
further £1.8bn or so Areas with good public realm been able to deliver on place and outside buildings space (e.g.
under offer. offerings, strong transport links have been able to create more access to roof terraces, gardens
or that have future infrastructure vibrant locations which attract and green spaces). But also easier
improvement plans for example occupiers and could act as an wins that could be made with
Victoria, Farringdon, Clerkenwell, incentive to bring workers into the improvements to things like air
Oliver Fursdon, King’s Cross and White City have office, as well as helping towards quality and lighting.
Director benefited from this in the past and establishing a community feel.
London Commercial it has helped these areas attract Well placed good quality
Development strong levels of demand from The digital aspects of mixed-use developments that are
increasingly footloose occupiers. placemaking like branding and well-balanced have the benefit
They also rank high in terms of communication also play a crucial of being supported by more
retaining their existing tenant role in successful delivery. "Digital community related elements, as
base. place making is particularly well as attracting the additional
S.P.E.C Indicators crucial for mixed-use schemes varied footfall from the different
Q2 2021 Additionally, to this we have for bringing people together complementary uses and have
seen clear evidence on the across the different uses and been demonstrated to attract
Central London post-delivery success of areas also with the wider community, premiums.
Office that have delivered on creating a which is a positive for long-term
place vs those that have not. The success" Katy Warrick, Residential The recent change in approach
integration of ESG considerations Research Director. in the office sector to a more
New Build and
refurbishment will continue to make all aspects user/customer focused approach
costs of placemaking, an increasingly Prior to Covid-19, our "What has increased the importance
important compliment for Central Workers Want" survey already of having early vision and clear
London offices. revealed London workers were strategy.
New Build and most dissatisfied with the
refurbishment Areas that have successfully provision of social meeting spaces
timescales*
Mixed-use developments
Occupier fit-out
costs "The true innovators and leaders in mixed-use development are already pushing forward.
They are challenging, ‘how can we do better?’, in every sense. How do we go beyond cre-
ating not just a great place, but one that is better for the environment, for society, and for
every users health and wellbeing? How do we create a place that remains vibrant and fresh,
Occupier but feels like an authentic part of the City fabric? Value will always be there for the best
fit-out schemes, but the ‘best’ will no longer just create a place, they will aim to leave a legacy."
timescales*
Sophie Rosier, Director
London Residential Development
4Savills Commercial
We provide bespoke services for landowners, developers, occupiers and investors across the
lifecycle of residential, commercial or mixed-use projects. We add value by providing our clients
with research-backed advice and consultancy through our market-leading global research team
Offices
Stephen Down Philip Pearce Paul Cockburn Felix Rabeneck Peter Thursfield
Executive Director Executive Director Director Director Director
Central London Investment Central London Leasing Central London Investment Central London Investment Central London Leasing
+44 (0) 207 409 8001 +44 (0) 207 409 8917 +44 (0) 207 409 8788 +44 (0) 207 409 8918 +44 (0) 207 409 8928
sdown@savills.com ppearce@savills.com pcockburn@savills.com frabeneck@savills.com pthursfield@savills.com
Sustainability Development
Hunter Booth Andrew Barnes Chris Cummings Oliver Fursdon Sophie Rosier
Director Director -Central London Director - Engineering & Director - London Director - London
Central London Leasing Tenant Representation Design Consultancy Commercial Development Residential Development
+44 (0) 207 409 8832 +44 (0) 207 409 9969 +44 (0) 207 409 8644 +44 (0) 207 409 5900 +44 (0) 207 409 8822
hunter.booth@savills.com andrew.barnes@savills.com chris.cummings@savills.com ofursdon@savills.com srosier@savills.com
Research
Mat Oakley Victoria Bajela Will Wilson Emma Mason
Director Associate Director Analyst Analyst
Commercial Research Commercial Research Commercial Research Commercial Research
+44(0)20 7409 8781 +44 (0) 207 409 5943 +44 (0) 207 409 8791 +44 (0) 207 409 5903
moakley@savills.com victoria.bajela@savills.com will.wilson@savills.com emma.mason@savills.com
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