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The demise of home working has triggered a new race for office space in London

City Voices (ES)
City Voices (ES)

“Man is the measure of all things”, so says the ancient Greek philosopher, Protagoras. But what exactly has this to do with the London office market? Well, quite a lot as it turns out.

The office landscape has been shifting and, spurred on by recent myriad of global events, is placing increasing value on people.

The market continues to diverge into prime office space that two thirds of London’s occupiers are looking for and secondary office space, which has seen a 44% drop in take up since 2020 activity.

Companies are prioritising getting their teams back together and, crucially, in spaces that reflect their values and ambitions.

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Owners of tired office buildings are facing difficult decisions as their assets, which can be as little as 20 years old, are failing to meet tough new sustainability standards.

Today (Thursday) Knight Frank launched our annual London Report in one of the biggest dates in the capital’s property calendar, as we welcomed 400 guests to the Nobu Hotel in Portman Square.

We revealed that 80% of corporates have increased their workspace requirements, with companies on the hunt for just under 12 million square feet of new office space across London.

All the stories we read about companies change in stance on Working from Home – with EY, Clifford Chance, Slaughter and May and Bank of America all in the headlines recently – are translating into an increase in office requirements.

Those companies are realising that in a near zero growth economic environment they need to be as competitive and productive as possible, with studies now emerging that working from home damages productivity, with the public sector a particular case in point.

The search for 12 million square feet of new office space – equivalent to over 150 football pitches – is a 34% increase compared with last year, with 50 of these companies looking for large buildings of more than 50,000 square feet.

The shortage of development finance, cost inflation on construction and a challenging planning regime, is leading to a shortage of new and refurbished office buildings being delivered. This is at its most severe in the City and West End core markets.

As a result, in the City of London there have been 25 leasing deals exceeding £90 per square foot over the past two years, compared with just six in the four preceding years.

Phil Hobley, Knight Frank (Knight Frank)
Phil Hobley, Knight Frank (Knight Frank)

In the West End, there have been 142 leasing deals at over £100 per square foot over the last two years, compared with 112 deals in the four years before that.

We also can’t under-estimate the impact of the Elizabeth Line on the London office market. It has, quite simply, shrunk London, with journeys like Abbey Wood to Paddington reduced from up to 90 minutes to half an hour.

The City of London – with the Broadgate office campus and the cluster of towers including 22 Bishopsgate, 8 Bishopsgate and 40 Leadenhall at its heart – is proving particularly attractive right now to a broad range of office sectors.

None of this has been lost on investors. The challenges of higher interest rates are well understood, but it might be surprising to learn that London’s offices attracted more overseas capital than any other market in 2023. Private buyers in particular have taken the opportunity to acquire assets at a time of less competition from other institutional investors.

London commercial real estate has never seen as much change as in the last five years. Four years ago, London was on the cusp of a long lockdown. A matter of weeks later, and it was being reported that the office was finished.

In 2024, however, Central London and its workplaces are buzzing again as employees fully embrace collaborating in person during the day and socialising together in the evening.

But for the owners of older buildings, the future calls for lateral thinking. All options to repurpose and reposition assets for alternative uses must be on the table. A challenge, no doubt, but in equal measure, an exciting opportunity to once again demonstrate London’s tireless spirit of reinvention.

Philip Hobley is Head of London Offices at Knight Frank