Central London View - February 2017: Occupier relocations

What exactly is happening?

Over the last 10 year, the number of Central London occupiers relocating to areas outside their traditional business clusters has increased significantly.  Between 2007 and 2011, an average of 33% of Central London leasing transactions involved a move between submarkets.  Between 2012 and 2016, this had increased to 51%.  In fact, in 2015 and 2016, an average of 67% of leasing deals involved a submarket move.

Central London submarket movers*

* Occupiers (20,000 sq ft+) moving between submarkets as % of total take-up (by number of deals)

Why is it happening?

For many occupiers, the role of real estate in their businesses has evolved more during the last five years than in the preceding 20 years.  For many of these evolved occupiers, real estate has become both a marketing and a recruitment tool, projecting brand values and attracting and retaining staff.  

Advances in technology have eroded the importance of clustering for efficiency and productivity, which has increased the potential search areas for businesses.  Quality and relevance of product, local infrastructure, amenity and public realm, have arguably become more important priorities for occupiers than location.    

However, we should not ignore the real estate fundamentals at play; availability of stock and pricing have also been crucial in enticing firms to new locations.

Where is it happening?

Occupiers are moving out of their traditional clusters to all areas of London, but some areas have attracted more businesses than others.

Euston & King’s Cross, Aldgate & Whitechapel and Clerkenwell & Shoreditch have attracted the greatest percentage of cross-submarket transactions; in 2015 and 2016 these areas have seen 100%, 71% & 69% of all 20,000 sq ft+ movers come from other areas.

While these areas are relatively immature office locations, this phenomenon should not be seen as a flight from the traditional core markets.  While the majority of relocation take-up in the City Core involved occupiers already operating in that market, 36% of take-up in the last two years involved a submarket move.  And this is without counting the 17 transactions that are not included in the analysis: take-up that did not involve a relocation, such as the expansion-driven acquisition of space by flexible workspace providers. 

While it is clear that the traditional clusters are breaking up, this does not necessarily mean that all areas ought to be attracting demand from across the capital.  The whole market is now open to many office occupiers, meaning that they may be equally as likely to acquire quality product close to their current location as well as new locations.

Who is moving?

The technology, media and telecoms (TMT) sector has been the most willing to consider new areas, however, movement between submarkets is certainly not confined to these young, disruptive businesses.  

More than two-thirds of all moves were by TMT occupiers, however corporates and professional sector occupiers were the next most active movers, accounting for 16% and 15% respectively.  Even the financial sector saw significant movement, accounting for 14% of moves.

Ten largest submarket movers, last two years

What happens next?

I predict that this phenomenon will continue, at least in the short to medium-term, as London’s pipeline of office space remains particularly tight.  Occupiers will continue to favour product over location, and be ever-willing to travel further afield should the infrastructure be adequate to support their businesses.

While to date, the markets surrounding the traditional core areas have attracted the majority of movers, it is our view that improving amenity in the cores along with ever-increasing quality of stock will attract more non-traditional businesses.  This has already been seen in the case of Salesforce and Deliveroo, who have both acquired space in the City Core, and area more traditionally associated with the financial and insurance sectors.   

For the time being at least, occupiers will continue to expand their horizons in search of the right building, expanding Central London’s boundaries as they go.