The changing profile of London's office occupiers
Making sense of the latest trends in property and economics from around the globe
3 minutes to read
From an occupational perspective, the recovery in London's office market is now well underway.
Take-up across the capital rose by 31.7% to 3.92 million square feet during the final quarter of 2023, a five-year high and 32% above the quarterly long-term trend, according to Knight Frank's London Office Market Report. Half of London's submarkets recorded above-trend take-up as occupiers took flight to higher quality offices. New and refurbished space accounted for 66% of all deals.
Near-term indicators suggest that momentum will be sustained through 2024, leading to annual office take-up of 12m sq ft, an increase of 12% that puts take-up back in-line with the long-run average. That finding comes from a new study of London's future demand profile, published on Friday as part of The London Series.
The year ahead
There is 11.9m sq ft of demand deriving from 230 active requirements currently exploring market options to transact within the next 12 months, according to the study. More than a fifth of those requirements are for spaces in excess of 50,000 sq ft. A little over three quarters come from three broad sector groups: financial services, professional services and technology, media and telecommunications (TMT).
In the case of financial services, there is more than 4m sq ft of active demand. Large-scale banks continue to reset their London portfolios but are being joined by a rich seam of niche financial and FinTech occupiers in growth mode. In professional services, which accounts for more than 3m sq ft of active demand, law firms have been at the vanguard of recent market activity. They are now supplemented with activity from accountancy and consulting firms preparing for potential changes in their structure or seeking a further enhancement of their workplaces.
The TMT sector accounts for 2m sq ft of active demand. Almost half of that derives from two sub-sectors – IT Software and Media Production, Distribution and Broadcasting. The latter is the source of seven requirements that collectively account for more than half a million sq ft, driven by the seemingly insatiable consumer appetite for content and the explosion of new delivery channels for its distribution.
But what about the years ahead? See the report for analysis of three emergent sectors that will command a larger proportion of London's occupational market as science and technology develops.
Rate cuts
The narrative as to whether central banks are close to cutting interest rates tends to swing, driven by a steady stream of hot and cold data points.
The outlooked looked a little murky in the early weeks of 2024, however, figures published in the US and Europe late last week solidified the view among investors that the Federal Reserve and European Central Bank are now very close to easing monetary policy.
Fed chair Jerome Powell told congress last week that he needs "just a bit more evidence” that inflation will soon return to the 2% target. “We’re not far from it,” he added. Those comments came before officials on Friday made big downgrades to previous jobs markets reports, suggesting the economy might not be quite as robust as the Fed had previously thought. Investors expect the first cut to arrive in June.
Similarly, figures from the Eurozone showed evidence of a weakening jobs market, which is also fuelling expectations of a first rate cut by June.
The UK context
The UK outlook is more uncertain, which by Friday had pushed sterling to its highest level against the dollar for five months. Last week's gain was the largest since November.
Traders don't expect the Bank of England to begin cutting rates until August, but a lot could change by Friday. Official measures of inflation and labour market statistics are all due out this week.
Does today's KPMG and REC jobs report provide a taste of what's to come? Demand for workers is falling at the fastest rate since the beginning of 2021, according to that report. Pay growth is now running at a three year low.
In other news...
More empty office space in New York than in London (Times).