Demand for office space in the City of London jumps as firms return

Plans for the building of a new Shard-scale skyscraper in the City of London (Visuals: DBOX)

Savills has said the appetite for office space in the City has continued its recovery from the pandemic this year, following what was a “strong” 2023 driven by robust demand from the financial services sectors.

The property giant leased 2.79m sq ft of office space in the Square Mile in the six months to June – 10 per cent higher than the same period last year.

The figure is also 19 per cent above the five-year average, although this was distorted by the collapse in volumes over Covid.

Savills revealed it also has over 2m sq ft of office space in the Square Mile under offer, surpassing the the long-term mean by 21 per cent.

Stuart Lawson, a director in Savills’ Central London Agency team, said: “The first half of 2024 has demonstrated positive progress in the City of London’s office market, following on from a strong 2023.

“It has also rewarded those with the conviction to deliver new schemes, such as 40 Leadenhall and 8 Bishopsgate, where demand has outstripped the space available.  With a notable uptick in under offers, we anticipate continued momentum in the coming months.”

In the second quarter of this year, firms hoovered up over 1.62m sq ft of space, a robust 16 per cent increase year-on-year compared to the second quarter of 2023. The majority of demand came from what Savills referred to as “key occupiers.”

The estate agent said the bulk of demand tended to come from the insurance and financial services sector.

The latter has emerged as a standout performer. It contributed 932,000 sq ft to the total take-up for the first half – the strongest first half since 2010.

The market for office space appears to have weathered consecutive difficult years, as firms’ demand has fluctuated with changing flexible working policies.

Well-refurbished, high-spec offices with robust environmental credentials have proven particularly popular with tenants in what has been dubbed a ‘flight-to-quality’.

But Ben Young, founder of George Capital, told City A.M. that while take up in the Square Mile’s offices may be improving, the investment picture remained been more subdued: “We have a conviction in the London office sector and noted that investment transactional volumes remain below the long term average.

“However, capital is returning to the central London office market and there are increasing signs of liquidity for the right stock.”