The City of London Corporation is preparing to review how the Covid-19 pandemic and hybrid working policies have hit office demand in the Square Mile and whether its existing City Plan aims to deliver the right amount of new space.
Planning officers will hire consultants this month to analyse demand for grade-A and B office space; how shifts to hybrid working are affecting the area’s office market; and whether existing offices could become “stranded assets” due to their age, type and energy efficiency.
The findings will then be reviewed alongside the existing City Plan, under which the corporation aims for a net increase in office space of 2m sq m (21.5m sq ft) between 2016 and 2036.
“These are fundamental questions for the City Plan, in terms of the overall quantum of office floorspace that the plan should provide for and the mix of land uses in the City going forward,” said officers in a new report, noting that existing research into central London offices “does not provide a deep dive
into City of London office demand and need, the impacts of hybrid working patterns or the future of the older
office stock”.
The research will be commissioned this month and delivered in mid-March. A spokesman for the City of London Corporation said a consultancy was yet to be chosen to run the initiative, which will be discussed at next week’s meeting of the corporation’s planning and transportation committee.
Members of the planning committee asked officers for fresh information on office development trends at a December meeting, asking “whether a shift to hybrid working is taking place, permanently reducing the need for new office floorspace” and whether “the so-called ‘flight to quality’ seen amongst both developers and occupiers is reducing
the demand for grade-B/older office stock that could be released for other land uses”.
The research will also weigh the need for SME, incubator, affordable workspace and cultural spaces, as well as the demand for shopping and leisure facilities alongside office space.
News of the initiative comes as the planning committee prepares to review a new report into office supply at next week’s meeting.
The report, from head of planning policy Peter Shadbolt, noted that the latest GLA projections suggest an increase in employment in the City of London between 2016 and 2041 of 176,000, reaching a total of 733,000 workers. Shadbolt said that to convert the employment projections to office floorspace targets, “a number of assumptions are made” on the occupation of City buildings and office vacancy rates and that a contingency allowance “provides a buffer to ensure a variety of spaces can be delivered in response to market demand”.
Between 2016 and 2022, Shadbolt said, there was a net gain of 695,510 sq m of office floorspace, compared with an overall target for this period of 900,000 sq m. In addition to completed floorspace, as of March 2022 there was 570,241 sq m of net office floorspace in the planning pipeline, either under construction or permitted but not yet commenced.
“Taking account of completions and pipeline development, there is potential to deliver 1,265,750 sq m of net additional office floorspace, suggesting that delivery against City Plan targets is broadly on track,” Shadbolt said.
Market conditions far removed from this time last year have left even the most optimistic dealmakers in the capital’s office market conflicted over what demand the city will see in the coming months, both from occupiers and investors.
“This year feels like we have a more solid base following a steady year of transactions after the pandemic hiatus but the level of uncertainty in 2022 seems greater than it did in 2021,” said Shaun Simons, co-founder of agency Compton.
While the leasing market “seems to have forgotten about [2022’s political and economic turmoil] already and is back to business”, the investment market “remains uncertain, which is a likely trend during 2023, or at least the first half of it,” he said.
As the gap between the best and the rest continues to widen, demand for quality spaces has continued to define the market.
At Landsec, head of offices Oliver Knight said he expects 2023 to show “a continued shift towards hybrid and agile work, with businesses committing to leases and capital investment in grade-A, sustainable spaces located in places that their employees want to visit”.
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