What is happening when one of the biggest, and arguably most significant, deals of Q1 is for an occupier who will never occupy the space themselves?
Serviced offices have been the saviour of London. In a supply starved market they have given much-needed breathing room to those either unable or unwilling to commit to a conventional lease.
Those lettings have now reached a point where WeWork can sign a 168,000 sq ft letting at Moor Place, EC2. The deal was the second largest of the quarter and the largest-ever letting to a single serviced office operator, according to figures from EGi London Offices Research.
The deal is indicative of a wider trend that has seen serviced office take-up increase almost every quarter in central London markets over the last three years – both in space let and transactional volume – as landlords increasingly turn to companies such as WeWork to ensure flexibility and convenience for occupiers, opening up the possibility of leasing central London space to a wider range of businesses.
Almost 250,000 sq ft was let to serviced office operators in Q1 2015 – a dip from the mammoth figures of Q4 2014, but still the second-healthiest quarter for serviced office take-up over the last three years, and a 42% bump on the equivalent period last year – helped in no small part by that flagship letting at Moor Place.
Now, nearly a 10th of all space let goes to serviced offices, with last quarter seeing 8.6% of all take-up accounted for by these operators. Again, no other individual quarterly period in the last three years – aside from Q4 2014 – has seen a greater share of leased space going to serviced offices. Indeed, the 8.6% seen in Q1 2015 is ahead of 2014 as a whole, when 7.48% of annual take-up went to serviced offices.
Perhaps most interesting is where exactly this trend is most prevalent. From initially being something of a fringe phenomenon when it first began some 30 years ago, serviced office occupation over the last three years has been healthiest in what would normally be described as the more traditional office sub-markets. Of the 2.2m sq ft of floorspace let since 2012, 40% has been in the City core, with a further 25% in the West End.
Whether this is simply a short-term rise or a future staple of the London office market may well depend largely on the fate of the UK economy, as well as what transpires with the supply crunch seen in London over the past 18 months.
Improvements in overall cash flows, coupled with an increase in office construction across London, could result in a reduced need for serviced offices, as start-ups and SMEs potentially look instead towards either new-build space or even grey space for their office requirements.
