Companies agreed a record number of office moves in London last year but took less space than pre-Covid levels as groups continued to reduce their footprint and adapt to hybrid working.
Office tenants signed nearly 600 new leases over 5,000 sq ft in 2022, according to data from real estate adviser Cushman & Wakefield, the highest number of moves agreed since it began tracking the market a decade ago.
However, those deals added up to just 10.5mn sq ft of newly-leased space, below the five-year pre-Covid average of 11mn, as companies took smaller premises and looked for better-located and more attractive offices to lure their employees back to in-person work.
“Our clients are saying to us, ‘how can we encourage more people to return to the office?’,” said Ben Cullen, head of London offices at Cushman & Wakefield, who advises businesses on their office needs.
He said the flurry of moves after two quiet years showed “occupiers holding still for a couple of years and trying to decide what to do”.
The central London office vacancy rate has increased from 5 per cent in March 2020 to 8.6 per cent last month, according to real estate data provider CoStar. The amount of available space stands at 28.1mn sq ft, close to the level recorded after the global financial crisis, but down from the Covid-era peak in the second quarter of last year, the company said.
Vacant offices are a worry for global commercial property investors, who are particularly concerned about the fate of the sector as post-Covid shifts in working habits intersect with a broad downturn in property values driven by higher interest rates. Analysts at Citi forecast London office values could decline almost 40 per cent by the end of next year.
Attendance in London offices is among the lowest in Europe, according to a study by Savills, who pointed to the relatively high time and cost of commuting into the UK capital.
However, changes to companies’ premises will take a long time to play out, as London office leases have an average term of around 10 years — although many companies sign leases for their new space years in advance.
Law firm Clifford Chance announced last year that it would leave Canary Wharf when its lease ends in 2028. Its new premises in the City will be 30,000 sq ft smaller. The Docklands area, as well as the City, has more vacant office than the West End, CoStar said.
Cullen said office layouts and specifications are also changing, with companies installing fewer desks and more communal workspaces and meeting rooms. Amenities such as roof gardens and terraces are in high demand and companies are seeking buildings with top green credentials to satisfy their ESG obligations.
“They have now lived through Covid and they now have a more stable view of what the purpose of the office is,” he said. “They will accept committing to office space even if it’s only being used at its full capacity 2-3 days a week.”
