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  • Writer's pictureKaren Fletcher

Market predictions for 2024 and beyond: The SectorScope reports on latest sector surveys

Updated: Jan 29


In the evolving landscape of London's construction market, the office development sector stands out for its remarkable resilience and growth. Deloitte’s latest London Office Crane Survey for Winter 2023 examines sector dynamics impacting the market in the next 12 months.


Despite macroeconomic challenges, developers are optimistic and adapting strategically.

The London office development market has witnessed a significant surge, with a record-breaking 5.1 million sq. ft. of new starts across Central London. This represents the highest volume since tracking began in 2005, doubling the figures from the previous survey. Such growth is not just in numbers; it reflects a resilient confidence in London's appeal to businesses. The City of London leads this charge, with 43 new schemes marking a dramatic comeback, nearing pre-pandemic levels.


Net Zero ambitions and innovation

Developers are increasingly aligned with sustainability goals, with many aiming for operational net zero across their portfolios by 2040. This shift is accompanied by the adoption of new technologies like artificial intelligence, although opinions vary on their impact on office demand. The industry is gradually transitioning to more dynamic, interactive, and spacious workspaces, reshaping the concept of office environments.


Economic headwinds

Despite growth, the London office market isn't immune to broader economic pressures. Rising interest rates, inflation, and construction costs challenge project viability. However, this downside risk is fuelling construction activity as developers seek to meet the high demand for premium office space. The legal and financial services sectors are particularly active, driving demand with their specific requirements, including environmental, social, and governance (ESG) considerations.


Responses to market dynamics

Developers are not just building but strategically upgrading existing spaces to cater to high demand for premium offices. This is evident in the record-breaking refurbishment start volumes, as well as in the significant increase in the average size of new build starts. The introduction of the UK government's minimum energy efficiency standard of 'B' by 2030 has also influenced these decisions – although The SectorScope has pointed out that this deadline is likely to be delayed.


Planning and operational challenges

The path to net zero is not without its hurdles. Developers cite the cost of construction and the implementation of Energy Use Intensity limits as significant barriers. These are not regulatory but are being increasingly adopted by developers. Moreover, Deloitte notes that planning issues have emerged as a primary challenge, with complexities in the planning process causing delays and impacting scheme viability.


London's office market resilience

However, London's office market demonstrates a robustness that speaks to its enduring appeal as a centre for business. With around 6 million sq. ft. of office space delivered recently and a stable development pipeline, Deloitte’s prediction is that London's construction market is poised for sustained growth. This resilience is further bolstered by developers' optimism about the leasing market and anticipation of stable, if not increasing, pipelines.



Adapting to a changing landscape

As we look to the future, the question becomes how the market will adapt to evolving demands and challenges. Developers are increasingly focused on refurbishing existing stock and planning large new builds to create more premium spaces. While gaining traction, green lease clauses present another layer of complexity, as developers navigate tenant expectations and cost implications.


Conclusion

London's construction market, particularly in office development, is a landscape of dynamic growth, strategic adaptation, and resilience. Despite facing economic headwinds and operational challenges, developers are forging ahead. This is driven by a strong belief in London's enduring appeal and occupier demands. As we move towards ambitious sustainability goals and embrace new technologies, the London office market is demonstrating the industry's ability to navigate change and seize opportunities.


Across the UK

Glenigan’s latest construction industry forecast looks beyond the capital to predict that 2024 should see some recovery after a disappointing 2023. The strongest growth looks set to be in projects valued below £100 million, driven by public investment and parts of the private sector.



Glenigan's report notes that the Department for Education (DfE) increased its 2022/23 capital funding budget by 26%, which produced a 24% increase in school building starts in 2023. That budget will only increase by 19% in 2023/23, but Glenigan still forecasts 13% growth in this sector.


Staying in the public sector, Glenigan forecasts an 11% increase in sub-£100 million projects starts aided by the Hospital Building Programme. This £20 billion scheme was relaunched in May 2023 as the Health Infrastructure Plan. Spending plans have grown with the inclusion of five hospitals diagnosed with RAAC that need to be completely rebuilt.


Construction work in the office and hotel & leisure sectors heavily relies on the private sector. However, increases of 6% are forecast by Glenigan for next year in both sectors. This will rise to 13% in 2025 in the office sector.


A rebound is forecast in the industrial sector, where starts will recover from a major slump this year and surge next year. More than £5 billion-worth of industrial projects are expected to start in 2024, which is 17% up on the figure anticipated for this year. This trend will continue into 2025 when an upswing of 21% is predicted.


Overall, Glenigan predicts that: “With all sectors due to experience a renaissance next year, the construction industry has better times ahead after a difficult 2023.”

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