Central London View - March 2018: New supply and the development pipeline

This is certainly the case when examining the development pipeline in isolation; if we just take into account what is currently being built, demand is likely to outstrip supply by a significant margin; at long-term average levels we would expect to see more than 9 million sq ft of new space taken up, while only 5 million sq ft is due to be delivered.

However, to get a true picture of our current position we need to take this analysis further. We need to factor in current levels of new and refurbished supply, and we need to examine which submarkets in Central London will be affected the most.  To achieve this, Knight Frank has analysed average take-up levels, levels of existing new and refurbished supply.

Across Central London as a whole, the market is perfectly balanced. 

Current new and refurbished supply, plus the speculative pipeline for the next two years, is equivalent to exactly 24 months of new and refurbished take-up at average levels. 

However, when we drill down to the City and West End submarkets, significant differences occur. The graph below shows that some submarkets face a scenario of serious undersupply over the next two years, assuming average levels of take-up.

Months of new and refurbished supply by submarket

In the above markets, an average rate of take-up over the next two years will exceed the total volume of current supply plus the development pipeline.

In the most extreme cases, such as Euston / King’s Cross and Aldgate / Whitechapel, the analysis shows that there us just five months’ worth of supply remaining.

This will both drive competition for the remaining units, and place the prime rent under upward pressure.  Additionally, we expect to see an increase in pre-letting activity in these markets, as occupiers look to secure space from the pipeline in 2020 and beyond.