London is set for an upsurge in office development with a rise in demolitions and the readying of sites for new construction, but office space is likely to remain in short supply over the next two years.

The latest London Office Crane Survey by Deloitte Real Estate shows 9.2m sq ft under construction across central London. Office development has now been running at below average levels for five years. This, combined with a clear rise in office take-up over the last 12 months, has resulted in availability falling to its lowest point since 2007. This year will see 7m sq ft of Grade A office space delivered, the largest volume in a single year since 2003. Despite this, 45% of the total volume under construction has already seen early letting success, so available space reaching the market will be significantly lower.

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Anthony Duggan, partner and head of research at Deloitte Real Estate, said: "Developers that started office development schemes at the first signs of economic recovery in 2011/12 are now reaping the rewards as their schemes complete at a time of reducing availability, increased tenant demand and rental growth. There is currently just 10 Grade A buildings in central London that are available to let as a whole, and only five which can offer an occupier 100,000 sq ft of space or more, which is severely limiting choice."

"We expect a short-term squeeze on supply across central London and the lack of choice for occupiers is likely to drive a further rise in pre-letting over the next 12 to 18 months. Whilst for some occupiers this will be the only option in securing the right space. An increased premium is likely as both supply constraints and rising construction costs continue to place upward pressure on rents."

(CD/MH)