Demand for office space remains remarkably strong despite economic setbacks and the hybrid workibng revolution
(Picture: PA Archive)Demand for central London office space surged by a quarter this year year despite the continuing popularity of hybrid working, new figures reveal today.
Data from property consultants Knight Frank show take up of office space rose by 24% compared with 2021. However, lettings of 10.9 million sq ft were still below the pre-pandemic average of 12.3 million.
New energy efficient space was the most sought after with demand up 27%.
Knight Frank predicts that the strong trend will continue into next year as there are currently deals under offer for a further 2.8m sq ft of space.
On top of that it is estimated that occupiers coming to the end odf their leases or needing more or better quality space will fuel demand for 8.5m sq ft more space next year.
Financial services firms drove the market, accounting for a quarter of all take up. Companies in the sector committed to 2.8 million sq ft of new office space this year, compared with 1.8m sq ft in 2021 and 1m sq ft in 2020.
Stand out deals last year include US financial services giant Capital Group agreeing to lease 225,000 sq ft over nine floors at the newly developed Paddington Square as its new London headquarters.
In the City, UK asset manager Aviva investors also confirmed it will move to a new 80,000 sq ft workspace spread across four floors at EightyFen, a new development named after its location at 80 Fenchurch Street in the City of London.
Financial services companies have also led take-up in the West End accounting for 35% of transactions, or 1.5 million sq ft of office space.
Investment bank Lazard announced plans to relocate its UK headquarters to 20 Manchester Square in Marylebone, where the firm will occupy 78,500 sq ft of refurbished office space and Blackstone committed to an off-plan pre-let of a 230,000 sq ft redevelopment of Lansdowne House, Berkeley Square.
The year also saw all-time high take up amongst the legal sector with 1.4 million sq ft space let, surpassing the 1.1 million sq ft total in 2021. This was driven by large corporate headquarter deals, including Clifford Chance’s 321,100 sq ft pre-let at Great Portland Estate’s 2 Aldermanbury Square development and Kirkland & Ellis committing to a new 215,000 sq ft office at 40 Leadenhall.
Philip Hobley, head of London Offices at Knight Frank, said: “Companies are having to navigate two new challenges; evolving a new strategy of flexible working patterns that support the wellbeing and productivity of their workforce and client service; whilst looking to engage and address ESG targets, both from a commitment and cultural vision perspective. This has pivoted the focus to new, higher quality buildings capable of delivering more dynamic workspaces ahead of leases expiring, in response to a constrained development pipeline.
“We estimate a shortfall of around 10 million sq ft between now and 2026, based on a visible pipeline of 15.9 million sq ft, of which 3.5 million sq ft has been pre-let, set against long term levels of take up of new and refurbished Grade A space standing at 5.6 million sq ft per annum.”
Shabab Qadar, London Research Partner at Knight Frank, said: “Despite a series of economic shockwaves, the London office market continued to demonstrate robust letting volumes in 2022, fuelled by the drive to occupy better quality buildings that can deliver enhanced workplace experiences.
“This is a trend that has intensified over the past couple of years, with factors such as sustainability credentials and wellbeing amenities becoming more central to office strategies. The 6.5 million sq ft of newly developed and refurbished lettings this year is the highest since 2019 and driven by a record level of take up of refurbished buildings of 3.7m sq ft that exhibit many best-in-class qualities.”
Office investment transactions totalled £13.2 billion, 7 percent higher than 2021. Activity was led by investors from the Asia Pacific region (36 percent), North America (19 percent), the UK (17 percent) and Europe (17 percent) targeting income security from long leases in buildings with blue-chip tenants to hedge against higher levels of future inflation.
The largest deal of the year was CK Asset Holding’s £1.2 billion acquisition of 5 Broadgate near Liverpool Street, which is let to UBS. Others included Landsec’s £809 million acquisition of 21 Moorfields, above Moorgate underground station, which is fully pre-let to Deutsche Bank. The year also saw Singapore’s Ho Bee Land buy The Scalpel for £718 million and Google acquire its London headquarters in Central Saint Giles for £775 million.
