City and Docklands office deals underline occupiers’ shift east
London’s Square Mile registered its highest proportion of office take-up in the capital in three years during the start of 2024, as occupiers look to the east for their new homes.
The City of London captured 55% of the total space leased during Q1 2024, the submarket’s highest quarterly share in three years, according to a new report from occupier-focused agency Devono. The Square Mile was also able to attract larger occupiers, with the seven largest deals all located in the City.
“This highlights the continuation of the flight eastwards that we have noted previously among occupiers, especially considering that only 21% of the space taken in central London this quarter was in the West End, its lowest quarterly share since Q4 2016,” said the team at Devono.
London’s Square Mile registered its highest proportion of office take-up in the capital in three years during the start of 2024, as occupiers look to the east for their new homes.
The City of London captured 55% of the total space leased during Q1 2024, the submarket’s highest quarterly share in three years, according to a new report from occupier-focused agency Devono. The Square Mile was also able to attract larger occupiers, with the seven largest deals all located in the City.
“This highlights the continuation of the flight eastwards that we have noted previously among occupiers, especially considering that only 21% of the space taken in central London this quarter was in the West End, its lowest quarterly share since Q4 2016,” said the team at Devono.
The shift east was further proven by a 93% quarter-on-quarter lift in Docklands. “The market continues to look to reposition itself in the wake of news that key tenants will be leaving the Wharf over the coming years, and such repositioning and cost-effective rents could well draw in more businesses,” the agency said.
Crushed expectations
Nonetheless, office leasing across London as a whole has got off to a far slower start than hoped this year, “dashing the expectations” set by a busy end of 2023, Devono said.
Some 2.3m sq ft was leased over the first three months of the year, the agency said, plunging by 45% compared with the same period in 2023 and 13% below the five-year average for the start of the year.
Just 407 deals were sealed, the lowest quarterly total in the capital since the final months of 2022.
The firm said the country’s recession and inflationary pressures had led firms to “hesitate” in securing new office space, but added that although “big-ticket decisions” were still tough to make, optimism is improving.
Shaun Dawson, head of insights at Devono, said: “Further drops in the inflation level and a cut in interest rates are eagerly anticipated by businesses, fostering greater optimism in moving to a more expansionary outlook, influencing future workplace strategies. In turn, we can expect to see leasing commitments pick up during the rest of 2024.
“With a general election now looming, businesses are closely monitoring policy proposals on taxation, regulation and general costs, all of which are poised to influence decision-making.”
The flex effect
Activity has been driven by smaller leasing deals. Only 13% of transactions tracked by Devono were larger than 10,000 sq ft in Q1, compared with 21% in the final quarter of 2023, with the most common size range being 500-2,500 sq ft. That shift means the average deal size has dropped by a fifth to 5,622 sq ft. “This trend reflects businesses’ adaptation to more flexible working patterns and a rationalisation of their office footprints,” said the firm.
The technology sector led the take-up table for the first time since the fourth quarter of 2021, accounting for 22% of activity. The financial sector fell to a post-pandemic quarterly low of 21%.
“While the 370,910 sq ft transacted by the technology sector this quarter does not represent an extraordinary level of take-up, it does signify a strong start to the year for leasing at 10% above the short-term average for Q1,” Devono said.
“This has largely been fuelled by the return of larger requirements from this sector, which had been lacking between Q2 and Q3 of the previous year, with tech firms accounting for two of the five largest deals in central London in Q1 2024.”
The firm added: “What we are seeing here is that following the various stages of fully remote working, larger tech firms are making more of a commitment to incorporating a fully fledged office offering, especially those firms working with more nascent technologies such as AI, to take full advantage of the opportunities for in-person collaboration.”
Fringe benefits
Office availability has edged up by 1% from a year ago to 24.7m sq ft, with fringe locations such as N1 and E1 registering the biggest jumps. The availability of grade-A space dropped in Midtown, the South Bank and Docklands.
Prime rental growth slowed, with an average uplift of just 1%. The biggest grade-A increases were in Midtown, King’s Cross and Covent Garden, with grade-B rents up in eight submarkets, most significantly the City core.
“The scale of rental growth in 2023 and the expectation of further growth in 2024 is taking some businesses by surprise, especially when compared with rents set five years ago,” the agency said.
It advised occupiers: “For businesses midway through their leases, upcoming rent reviews may bring unpredictability and heavy negotiations as landlord-tenant rental expectations diverge. Knowing how the office market works and its impact on pricing is crucial. Stay prepared and get ready for those talks well in advance, ideally six to nine months before the review.”
Photo © Vuk Valcic/SOPA Images/Shutterstock
