London office construction races to capitalise on high rents

Developers started a record number of central London office projects in the six months through March as they tried to capitalise on rising rents.

Construction work began on 51 office buildings during the period, Deloitte said.

About 14 million square feet (1.3 million square meters) of space is now under construction, 28 per cent more than the previous six months and the highest since March 2008.

“In just 18 months, we have seen activity nearly double,” Deloitte said in the report, which it started publishing in 1996.

“This is perhaps the first survey in a long time where we are able to point to the pendulum swinging away from landlords and back toward tenants.”

About 42 per cent of the space under construction has already been leased and vacancy rates remain at a record low of less than 4 per cent.

The "tight market conditions" are likely to continue for a few more years, according to Tim Leckie, an analyst at JP Morgan Chase.

“There is a risk of the cycle turning first in the City from 2018 as new supply comes online,” he said in an email.

Total return from London investment properties, which combines changes in real estate values and rental income, was 1.54 per cent in the three months through March, the lowest since 2009, according to data compiled by MSCI.

The slowdown came as concerns that Britain's looming vote on membership of the European Union deterred investors who fear a drop in demand for office space if the UK votes to leave.

- Bloomberg