Landlords are having to cut asking rents on office buildings with poor energy efficiency ratings by as much as 10% to attract tenants, according to new figures from Carter Jonas.
The agency’s London Office Market Report for Q4 2022 found that landlords of grade-B space with poor green credentials will “continue to be under pressure to offer long rent-free periods to attract tenants”.
The report found that continued economic uncertainty and declining economic activity have contributed to predictions of weaker demand across the London office market in 2023.
Analysis showed a structural shift in demand away from low quality stock is reflected in lower asking rents on poor space and is emblematic of growing bifurcation in the London office market, noted the agency.
Conversely, due to increased demand for greener, prime offices landlords have trimmed rent discounts on grade-A office space in the capital from as much as 6%, to as little as 1%.
The highest discounts were more common in the City of London, City fringe and Docklands sub-markets and for the lowest-grade stock, both new and refitted, in the grade-A segment of the London office market.
As the market goes through a period of repricing and looks to adjust moving into 2023, Carter Jonas predicted that discounts and rent-free incentives on prime spaces are likely to remain static the first quarter of the year.
Data showed that the West End remains the costliest for tenants. The most expensive submarkets for occupiers based on rent, business rates and service charge costs in Q4 2022 were Marylebone (£151 per sq ft per annum), Soho (£146 per sq ft per annum) and Fitzrovia (£143.95 per sq ft per annum).
While occupational costs for new and refitted mid-rise grade-A space over 5,000 sq ft in submarkets including Crossharbour (£60.50 per sq ft per annum), Stratford (£72.00 per sq ft per annum) and White City (£84.25 per sq ft per annum) are comparatively lower.
But, as the market adjusts to weaker demand, Carter Jonas predicts rent free incentives may begin to expand during the second quarter.
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