Occupier demand for London offices hits the highest level in a decade
Making sense of the latest trends in property and economics from around the globe
2 minutes to read
Occupiers are on the hunt for almost 12 million square feet of office space in London, 34% above the same period last year and the highest figure in ten years.
Businesses are generally coalescing around 'office first' work policies and are competing for a tight supply of best-in-class buildings. Eighty percent of companies seeking space want to upsize or match their current footprint.
The surge in borrowing costs impacted the viability of development, which will be felt in the construction pipeline for years to come. The deliverable pipeline by 2026 is around 5.3 million square feet below average levels of take-up for new and refurbished space. Occupiers are aware of these dynamics and are seeking to secure workspace earlier than they normally would. All of this will underpin growth in leasing volumes and prime rents over the coming years.
Knight Frank published the data last week as part of our 2024 London Series. You can read more here.
Take up surges
Many of these themes extend beyond London. Take-up in the M25 & South East office markets surged 64% to 1.4m sq ft in the final quarter of 2023, the highest quarterly total since 2018. New and Grade A space accounted for 84% of take-up during the year.
Occupiers in these markets are generally seeking quality over quantum. Three quarters of deals signed during the year were for 10,000 sq ft or less, and the number of deals in this size range was the highest in Knight Frank records.
The vacancy rate increased marginally to 7.8%, which is above the long-run average. Developers completed 1.4 million square feet of space speculatively over the course of the year, the highest total since 2017. Oxford and Cambridge accounted for 44% of the total amid booming demand from Life Sciences companies. Download the report for more.
Prime central London
Leading indicators suggest we'll see a rise in activity in the prime central London residential sales market.
The number of market valuation appraisals requested by prospective sellers was 15% higher in prime central and prime outer London in January compared to the same month last year, according to our latest figures. The number of new buyers registering is up 8%.
Meanwhile, the prime central London rental market continues to ease back to something resembling normality. Supply has been rising due to a relatively subdued sales market, where low transaction volumes and minimal price growth has led to more sellers exploring the rental option.
Annual rental growth in prime central London (PCL) fell to 7.2% in January, compared to 18.3% a year earlier. In the five years before the pandemic, the average figure was -0.8%.
In other news...
UK unemployment rate much lower than thought in late 2023 (Reuters), Jeremy Hunt authorises OBR review of ‘tourist tax’ (FT), Jay Powell says Fed expects to make three rate cuts this year (FT), and finally, give clear view of net zero emissions plan, CBI tells chancellor (Times).
Photo by Marcus Loke on Unsplash