Active demand for London offices reaches record high

Take-up for central London office space exceeded forecasts to hit 9.6m sq ft in 2023, according to data from Cushman & Wakefield. This was driven by a surge in leasing activity in Q4, which totalled 3.3m sq ft across 158 deals – the strongest quarterly volume since Q4 2018 and 48% above the five-year average. The total take-up figure surpassed projections made at the start of 2023, which estimated around 8.5m sq ft would be leased over the course of the year. The total volume of active requirements reached 13m sq ft at the end of Q4, driven by 318 occupiers. This reflected a rise in occupiers seeking spaces of more than 100,000 sq ft. In terms of size, take-up per sq ft was 8% lower than the 2022 total. However, it was 7% ahead of the five-year annual average of nearly 9m sq ft. Researchers said that on the back of strong leasing activity during Q4, the total volume of space under offer across the market dropped by 40% quarter-on-quarter to 2.2m sq ft. The amount of grade-A space under offer reduced by 52% to 1.3m sq ft. Last year, grade-A office space accounted for 70% of total-take up and was up by 27% on the five-year average due to sustained occupier demand. By submarket, the City recorded its strongest Q4 leasing activity since 2006, accounting for 66% of take-up in the final quarter. Some 2.2m sq ft transacted, of which 76% was grade-A. These were spurred by significantly large deals in the area, including HSBC’s 556,000 sq ft prelet at Panorama St Paul’s at 81 Newgate, EC1, the largest leasing deal in central London since 2018. This contributed to a leading amount of take-up for the banking sector, which accounted for 37% of the 1.23m sq ft traded. That was more than double the volume recorded in the West End, where nearly 1.1m sq ft was taken. However, demand for grade-A space was similar to the City, at 73%. Looking ahead, the continued flight to quality has put pressure on the pipeline for the best space in the capital, which is facing further constraints due to a significant reduction in the volume of new speculative developments after 2025. Central London supply reduced for the first time since Q2 2022 to 27m sq ft at the end of December last year, marking a slight reduction of 1% throughout the quarter. Yet volume remained 34% ahead of the five-year average, which has helped reduce vacancy rates to 9.3% for all space and 4.8% for grade-A spaces. Ben Cullen, head of UK offices at Cushman & Wakefield, said: “The strong take-up figures in 2023, particularly in the final quarter, reflect the ongoing attractiveness of London’s office market to occupiers. Despite economic challenges, leasing activity has held up well, especially for grade-A space. With active requirements at record levels but constraints on new supply, we expect competition amongst tenants for the highest quality space to intensify further in 2024.” Heena Gadhavi, research and insight, Cushman & Wakefield, said: “The outlook for the London office leasing market remains positive after significantly outperforming expectations in the final quarter. The pace of economic recovery will continue to heavily influence occupier and landlord strategies, and, as inflation falls, there may also be the welcome boost of opportunities being unlocked for investors across the market.” Image: City of London Corporation