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Large businesses are leasing more office space in London than they were two years ago, despite several high-profile instances of corporate downsizing.
HSBC, the bank, and Clifford Chance, the “magic circle” law firm, are among those that have announced moves to much smaller offices in recent months. Nevertheless, even including those changes, the net area of office space leased in London has increased by 1.1 million sq ft since 2021, data from Knight Frank, the property agent, shows.
Shabab Qadar, Knight Frank’s head of London research, said the findings “bust a few myths” about the future of the office. He said that although the “number of bums on seats” in offices was down compared with before the pandemic, most corporate renters wanted bigger offices so that they could have more collaboration spaces and better canteens, or space for gyms and showers.
“Physical office occupancy levels are down on pre-Covid levels, but the big change that has happened since Covid is the desire of occupiers to be in best-in-class offices,” Qadar said. “These best-in-class buildings that have been recently developed are almost hotel-like in the nature of amenity provision. There is also this growing trend among occupiers to ‘de-densify’ their offices.”
The number of companies looking for new offices in London is at its highest level in a decade, with leasing agents working to find 12 million sq ft of space for their clients. About 80 per cent of companies in the market for a new office are looking for either the same amount of space or more, Knight Frank found.
However, there is a shortage of the most modern, eco-friendly office blocks that corporate renters are demanding. Not enough have been built recently or are in the pipeline, while a number of offices are likely soon to become obsolete as new sustainability rules come into force.
As such, companies are battling it out for high-end offices, rents for which are increasing quickly. Over the past two years in the City of London, 25 leases have been agreed at rents above £90 per sq ft, compared with six in the previous four years. Similarly, in the West End there have been 142 deals at rents over £100 per sq ft in the past two years, compared with 112 in the four years before. The supply-demand crunch means that agents expect rents to continue to rise.
“London’s occupational market remains robust as the bifurcation in demand and transition to office-first work policies continue to crystallise,” Philip Hobley, head of London offices at Knight Frank, said. “While vacancy rates have increased in older, secondary buildings, prime rents in best-in-class offices have continued to rise.”