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London construction starts at record highs despite 'Brexit' uncertainty

The possibilityof a British exit from the EU — or "Brexit" — has failed to dampen thereal estate industry's appetite for London development as a record-breaking 51 Londonreal estate schemes started construction in the six months to the end of March,according to Deloitte Real Estate's latest Crane Survey.

Thisis the most starts ever recorded in the history of the survey, which is used asa barometer for sentiment around real estate development in the capital. Some 14.2million square feet of office space is under construction in London, up 28% fromsix months ago.

If Britainwere to leave the EU, the impact would take some time to be felt in the London developmentpipeline, Will Matthews, head of research at Deloitte Real Estate, said.

"It'snot the kind of thing that would make every developer down tools straight away,"he said in an interview.

Thoseworried about a shock to the market if Britain were to leave can take comfort fromthe fact that much of the office space now under construction is already pre-let,he added.

In thecentral London submarket, 42% of space under construction has already been committed,according to the report.

Constructionstarts in the past six months have surpassed their previous high of 37 during 2007,largely the result of developers responding to high demand for office space in Londonafter five years of very limited development activity.

"Themarket has suffered for a period from low supply, and it's been understood for sometime that new supply needs to come online to satisfy demand. When you look at the51 starts in the latest survey, it's a real story of confidence on the part of developers,but it's also a story of businesses saying that they want to be in London, and thatthey want to have options available to them in terms of type and location of officespace," Chris Lewis, head of occupier advisory at Deloitte Real Estate, saidin an interview.

However,as the team of analysts at J.P. Morgan pointed out in a May 11 note, a few detailsbehind the attention-grabbing headlines of the summer Crane Survey should be takeninto account.

First,out of the record 51 construction starts, some 25 are actually refurbishments ofexisting buildings.

"Thisis important as it means net addition to office stock is close to zero from theseprojects," the note said. "Furthermore, this is a response from developersto the current tight supply conditions and strong demand, as refurbishments canbe delivered to the market in shorter time than rebuilds. It is also important tonote that this is not supply competing directly with the brand new shiny skyscraperspace, such as 100 Bishopsgate, which kicked off this half."

is the largestbuilding under development in the Crane Survey. The 867,000-square-foot tower isbeing developed by U.S.-listed BrookfieldProperty Partners LP, which has already pre-let 250,000 square feet of the space to the Royal Bankof Canada.