Offices are in demand again as central London recovers
Demand for office space in central London took off towards the end of summer, pouring cold water on the idea that many workers might never go back into the city.
Between July and September, companies leased 2.77 million sq ft of office space in central London, according to data from Cushman & Wakefield, the property agent. That was 54 per cent more than was rented out between April and June and nearly three times what was taken up in the third quarter of last year. It is also 12 per cent above the five-year quarterly average.
Cushman’s analysts said that the third quarter had “marked a turning point in the post-pandemic London office market”.
Media and technology companies have been driving demand, accounting for about 31 per cent of leasing volumes during the quarter. Banks and law firms were also active.
By the end of September, there was 3.4 million sq ft of office space under offer, according to Cushman, 18 per cent higher than the five-year quarterly average of 2.9 million sq ft under offer.
“We have seen sentiment improve greatly in the London office market in the third quarter,” Ben Cullen, head of UK offices at Cushman & Wakefield, said. “This largely reflects the opening up of the economy, but also the release of requirements that had been paused during the lockdowns of the last 18 months. Crucially, it shows that businesses are making long-term investments in their physical office space.”
The debate about the future of the office has rumbled on for over a year and a definitive answer has yet to emerge. However, as the return to the office accelerates, the analysts expect tenants will “finally be able to observe and better understand their space requirements”.
Over the past 12 months, central London office rents have fallen by 1.1 per cent, but they are forecast to rise by around 5.3 per cent in 2022.
The number of London office blocks being bought and sold is also improving, albeit from a low base, with overseas investors, who typically account for a big chunk of trading activity, having been unable to travel into Britain until recently.
A total of GBP3.2 billion was invested in central London offices in the third quarter, bringing the year-to-date figure up to GBP7.5 billion — 21.5 per cent shy of the five-year average. The continued easing of travel restrictions around the world would “undoubtedly have a positive impact” on investment activity, Cushman said.