City office leasing levels match decade highs

Office leasing deals in the City have reached the joint highest numbers recorded over the past decade, according to Cushman & Wakefield’s latest London Moves report. Occupiers signed 331 deals for City offices measuring more than 5,000 sq ft during 2023, equalling highs recorded in 2015 and 2018. Of last year’s total, 245 transactions were signed either by new market entrants or existing firms relocating within central London. The comparable figure for the West End was 142 deals. Overall, 545 deals took place across central London, 9% below a record level in 2022. Researchers at Cushman said macroeconomic factors weighed on larger occupier moves. Just seven deals above 100,000 sq ft were recorded, a number that was only lower in 2020, when four deals were made. The number of smaller transactions, ranging between 5,000 and 25,000 sq ft, reduced by 11%. The number of existing central London office occupiers relocating elsewhere in the capital was at its highest since 2015, with 342 movers. This equated to 6.2m sq ft and a 64% share of total take-up for the year. Of those, 172 businesses moved into a new submarket, while the remaining 170 took new space in the same area as their previous office. All (still) points east West to east migration remained the dominant trend. The City core had the largest concentration of movers since 2015, with 130 relocating to new premises. Of those, 39 left the submarket, while 91 stayed. Forty-six occupiers relocated out of the West End into the City, also the highest number since 2015. During the same period, 14 moved the other way. Ben Cullen, head of UK offices at Cushman & Wakefield, said: “It is no longer just cost that is the primary driver for moves, as was the case pre-pandemic. Supply has taken precedence, most acutely in relation to grade-A space, which is a scarcity in many of the West End submarkets, forcing occupiers to widen their search radius. “Some are taking the approach of regearing or renewing existing leases for the short-term, awaiting a period when appropriate space may become available.” Some 326 existing occupiers increased their office footprints, with 201 expansions in the City and 114 in the West End. The professional services and banking and finance sectors were the most active for expansion, with occupiers leasing less than 25,000 sq ft also recording the highest expansion volumes. During the year, 91 occupiers shrank their presence by a collective 1.8m sq ft. The City core experienced the biggest losses, driven by decisions made by businesses in the banking and finance sector. For the seven deals over 100,000 sq ft, two major occupier contractions outweighed five expansion deals, equating to an overall net reduction of 204,000 sq ft. Cullen said: “The City of London’s office leasing market is characterised by high volume and high resilience, despite some of the major occupiers relocating. The City’s record leasing activity reflects its enduring status as a globally competitive business hub and destination of choice for many occupiers. “While we expect some large-scale occupiers to downsize or consolidate their offices, the volume of expanding occupiers demonstrates central London’s desirability as an office centre for both small and larger businesses, countering the narrative that all occupiers are downsizing amid challenging economic conditions.” Moving to London Cushman noted that the profile of occupiers in central London remained varied. Flexible workspace providers signed for 867,000 sq ft across 31 transactions, the highest level since 2020. Barring this sector and the education and medical sectors, 59 deals were either signed by new businesses or those entering the market from outside central London. This was slightly down from 62 deals in the previous year. New entrants in the capital targeted the West End, with 31 businesses leasing space in 2023, totalling close to 300,000 sq ft. In comparison, the City saw 26 businesses take 250,000 sq ft. Technology businesses were the most active, with 17 new entrants in 2023, increasing year-on-year for the past four years to its highest level since Cushman & Wakefield’s records began. Retail and leisure occupiers followed, with 13 entrants recorded. Of the new entrants, 28 occupiers were businesses acquiring their first office space, while the remaining 31 occupiers relocated from outside central London, of which 12 were from within Greater London. The overall office vacancy rate in central London averaged at 9.3%. However, grade-A offices had a much lower 4.8% vacancy rate. Cullen said: “Robust 2023 leasing activity, stabilising vacancies, high requirements, and a tight development pipeline are all putting upward pressure on office rents. However, as debt markets stabilise and inflation eases, income-driven investment opportunities across central London will become more popular, potentially triggering new development starts that were due to begin beyond 2025.” Photo by London From The Rooftops/Bav Media/Shutterstock