Office development in the capital remained flat in the second half of 2012, with tenant demand remaining subdued apart from a few bright spots.

The number of new starts effectively mirrored the number of completions to keep total development steady at 9m sq ft, according to the latest Drivers Jonas Deloitte crane survey released today.

The uncertainty in the wider economy is leading developers to choose refurbishments over redevelopments, with 15 of the 25 new starts during the period refurbishments. This means a quarter of London development currently being undertaken is redevelopment.

The City saw an uptick in development – 4.1m sq ft is now under construction, a 15% rise on six months ago. In part this is being driven by a diversification of the tenant base of the City, with insurers and technology, media and telecommunications companies taking over from financial services firms as the drivers of demand.

Drivers Jonas Delotte head of research Anthony Duggan said: “Office development in Central London continues to fare well despite the wider economic malaise.  This Crane Survey has shown that sentiment remains positive in the London office market. Increasing early-letting activity at schemes under construction adds further confidence and an endorsement of those that have made the decision to deliver in these uncertain times.

“However, the reality is that wider tenant demand remains low.  Take up for Central London during 2012 is likely to struggle to reach 2011 levels which totalled just half of the long term average.  Looking to 2013, the closely watched Deloitte CFO survey suggests that corporates will remain on defensive rather than expansionary policies next year and, until macro economic uncertainties subside, it is unlikely that capital spending and hence demand for real estate will increase substantially.  Positively for developers of London office space we expect the demand that will transact to continue to focus on new, efficient, appropriately specified, attractively designed and correctly priced real estate.  We believe the volume of space under construction is ‘manageable’ i.e. not too high given the weak market conditions however delivering the right product remains key and the market is likely to be unforgiving for substandard schemes.”

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