UK office construction drops to 10-year low

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Development of offices across Britain has slumped to its lowest level in 10 years as lingering economic uncertainty and persistently high costs damp builder confidence, according to an industry survey.

The amount of office space under construction in the UK fell to about 23mn square feet in the first quarter of this year, its lowest point since the beginning of 2015, according to analysis by CoStar, which provides research for the commercial property sector.  

Construction activity was down by more than 3mn sq ft over the past year, according to the analysis.

“Developers are pausing for breath amid economic uncertainty and the persistently high cost of debt and construction,” said CoStar, ahead of the publication of its analysis next week.

The data represents a fresh blow to the government’s efforts to drive economic growth by “getting Britain building again”. 

In March, S&P Global reported that UK construction activity fell at the fastest pace since May 2020, largely due to weakness in the housebuilding sector due to muted demand amid low consumer confidence and poor economic growth.

The CoStar analysis revealed a stark contrast in office building across the UK with London and the Oxford-Cambridge tech corridor dominating activity. 

In the cities of Oxford and Cambridge combined, about 1.8mn sq ft of office construction was under way with developers keen to capitalise on the buoyant demand generated by university spin-offs and established innovation and tech companies, said CoStar.

In the capital, about 12mn of office space was under construction including One North Quay, a life sciences research and development facility in Canary Wharf and 50 Fenchurch Street, where work had started on site on 650,000 sq ft of office space.

Demand for office space in London was driven by large employers seeking “Grade A” high quality buildings, with new features such as fitness suites and yoga rooms, to entice staff back to the office after a period of hybrid working.

Conversely, little or no space were being built in markets such as Liverpool, Bristol and Glasgow, where relatively high vacancy rates of Grade A properties meant there was less appetite for developers to deliver more offices into an already well-supplied market.

Property experts said workforce shortages were creating ongoing challenges for the building sector. 

“Post Brexit we’ve seen a huge number of people who have traditionally worked in the construction industry leave the UK,” said Leona Ahmed, partner with Taylor Wessing, the law firm. “Manpower is an issue.”

The Royal Institution of Chartered Surveyors said environmental regulations for office buildings were also impacting development.

“Despite the government’s desire to see Britain building, there’s a myriad of factors weighing on that,” said Simon Rubinsohn, chief economist at Rics.

Looking ahead, the CoStar analysis noted some positive indicators for the office market, including construction orders hitting a three-year high during the first quarter, according to data from the Office for National Statistics.

However, the analysis noted that the level of building activity was “unlikely to rise significantly in the short term”.

The housing department said the government was taking “decisive steps to unlock growth and accelerate building” through its planning and infrastructure bill alongside the national planning policy framework.