Getting under the skin of London’s office market

• Talent retention, amenities, costs and digital connectivity are top concerns for occupiers
• London shows City Core top location for amenities, while King’s Cross is best for broadband speeds
• High quality digital infrastructure can be a useful differentiator for landlords

According to our Landlord and Investor Survey, talent retention, the costs incurred by business through rent, amenities and the digital connectivity rating of a building were identified as key issues for landlords as well their customers. 

In order to understand how these factors influence businesses and investors when choosing particular office submarkets in which to locate or deploy capital, we have partnered with King’s College London and the Consumer Data Research Centre (CDRC).

We have examined seven factors and below we present the areas in Central London that rate best for amenities and digital connectivity and the availability of office space, using a combination of our own proprietary data, as well as data exclusive to the CDRC. 

The variables we reviewed include:

OFFICE SPACE

1) The volume of existing and planned office space

2) Impact of rental costs – we took high rents as a positive factor for locations inside Central London, with the rationale being that businesses appear to be willing to pay a premium to be near like-minded businesses. However, for locations outside Central London, the opposite is true, with cost considerations being of greater significance, thereby meaning high rents score negatively.

CONNECTIVITY

3) TfL connectivity – looking at the ease of access to Tube and bus services 

4) National Rail – understanding the perceptions and reliability of mainline suburban rail services across London

5) Digital – looking at average download speeds in London

NEIGHBOURHOOD & WELLNESS

6) Access to talent – examining the concentration of degree-educated people in London

7) Wellness – assessing the concentration of amenities such as medical facilities, restaurants, childcare centres, fitness clubs, etc., using the Access to Health And Hazards (AHAH) index; however all the “hazards” were removed, leaving just the positive health-related amenities 

Results explained

Market size: In Central London, we found that the City Core tops the rankings for space available and amenities. The City accounts for 54% of total office stock in London, which equates to about 123 million sq ft. There is currently a further 6.3 million sq ft under construction, roughly half the London pipeline. 

Digital: In terms of digital connectivity, Euston/King’s Cross stands out having the best digital connectivity rating in Central London. This appears to be a result of the Google building taking advantage of the digital superhighway established by the Government along Euston Road. 

Central London generally has weaker levels of fixed and mobile broadband speeds when compared to the rest of London, as is illustrated in the table below and so the Google building and King’s Cross stand out. 

Mapped: average download speeds across London 

Source: CDRC

Mapped: spread of good amenities across London (health care and leisure facilities)

Source: CDRC

Is there a connectivity premium?

The answer is: it depends. Research last year by Radius Data Exchange has shown that buildings with at least a Wired Score accreditation command a rental premium of 4.7% over similar comparable neighbouring properties. 

The research looked at 65 office buildings in Central London, where space had been let in the last five years. Interestingly in the City Core and West End, the ‘digital premiums’ stood at just 0.3% and 1.6%, respectively. However in other locations, such as the City fringe (9.2%) and Southbank (15.2%), there are higher digital connectivity premiums.

We believe, therefore, that high-quality digital infrastructure can be a useful differentiator for landlords, albeit recognising that the benefit will be greatest away from core markets.

From an investment perspective, the benefit, or indeed the appeal of digital connectivity ratings is perhaps less clear. The opportunity we feel lies in upgrading a buildings connectivity credentials, which will bring with it a digital connectivity rental premium for the right occupier.

Alternatively, due diligence around the digital connectivity ratings of a building may help achieve a premium at sale, or indeed a discount at acquisition, particularly as connectivity remains so divergent  across London.