Key office submarkets along London’s Elizabeth Line have shown record rental growth, with more than half of central London take-up so far this year within a 10-minute walk of a Crossrail station.
Farringdon has posted above-market rental growth of 46% over the past decade, with Bond Street and Liverpool Street each seeing 37% uplifts, data from the London Property Alliance shows.
The LPA’s report, published with Knight Frank, shows a marked uptick in leasing activity and a sharp increase in rental income along the line, as office developers and owners prioritise encouraging workers back into the office.
Offices within a 10-minute walk of stations on the line have outperformed those further afield, with above-average take-up recorded in Paddington (150% above trend) and Bond Street (65%).
This uptick was driven by a flurry of financial firms taking space as the flight to quality continues to drive occupier appetite. An increased awareness of and consideration for employee wellbeing, ESG factors and the need to entice workers back to the office has fuelled predictions of a 6.5m sq ft space shortfall across the network over the next four years.
Multi-pronged attack
As the struggle to attract and retain talent rages on, occupiers are increasingly reliant upon their real estate to provide staff with quick and easy journeys to encourage them out of their houses and back into the office.
The role that transport has in this fight is key but it is also “the quality of the real estate” that is important, according to Shabab Qadar, London research partner at Knight Frank.
“It’s a multi-pronged attack, getting people back into the city post-pandemic,” he added. “The improvement to connectivity is going to be enhancing mobility, and we have seen that from the first 12 months of the Elizabeth Line opening. In order to keep people in the office, landlords will need to create buildings that offer a workplace experience that is amenity-rich – buildings that also cater for the wellbeing of the employees.”
The report found that take-up along the line has averaged an annual 6.3m sq ft since 2013, 13% above the long-term average and posting 6% inflation-adjusted prime rental growth. The LPA says almost 200,000 new office jobs have been created in the submarkets served by its stations during the past five years.
Charles Begley, chief executive of the LPA, said: “The Elizabeth Line has been truly transformative and shows how important continued investment in our transport infrastructure is in order to drive economic growth. The findings demonstrate how investment from the capital’s leading businesses has delivered best-in-class office space, public realm and new amenities post-pandemic in locations close to the new line.”
He added: “It is globally renowned as an exemplar of engineering and design excellence, which has led to tangible benefits in terms of London’s commercial success. We now need that investment to continue with HS2 and other projects.”
Elizabeth Line locations have also outperformed other markets on prelet transactions. Approximately 40% of the 6.4m sq ft of office space completing along the Elizabeth Line between now and 2026 has already been prelet, 10% above the London average, driven by companies committing to new corporate headquarters.
Affectionately dubbed the “Lizzy Line” by travellers, the LPA said Crossrail proves the economic and social benefits of infrastructure investment and urged the government to push ahead with schemes such as HS2 to further support growth.
The line was 70% funded by Londoners, with 30% of the line financed by the private sector. “It is really important that we think of the success of this line in terms of the fact that businesses have really pulled their weight in helping to pay for it,” said Alexander Jan, chief economic adviser at the LPA.
“Everybody thinks these things just grow on trees and London gets given all this stuff, but this is a very important point, and no doubt it is a model that we are going to have to use again and again to get other things built,” Jan added.
“Hopefully, some more development will come around the major stations. I think if you could do it slightly differently again, I would have gone for more development at the big stations. That’s not only because of the opportunity for business, but I think it helps strengthen the economic case for these schemes.”
Big gains
Some submarkets have been irrevocably changed by Crossrail’s presence and rejuvenated by the line. One such market is Farringdon, which now accounts for 31% of all letting activity in the City, compared with 23% a decade ago. This has been jump-started since the pandemic, with take-up 20% above pre-Covid levels following tech giants, including TikTok and Snapchat, moving their headquarters to the area.
“We all know about [the Elizabeth Line] being late and over-budget, but actually in some ways being late was perfect timing because we came out of Covid and then there was this new line on offer which provided an environment that a lot of people who had concerns about travelling during and just after Covid were comfortable in,” said Jan.
In the West End, financial services firms continue to flock to the wider Bond Street area, where the area accounted for nearly 60% of all office lettings over the past 10 years. These figures were bolstered by major lettings including Blackstone committing to 232,000 sq at Lansdowne House, 57 Berkeley Square, W1, and Pimco preletting 25 Baker Street, W1.
Big gains were also made in Paddington, where office leasing volumes have been up 150% on the long-term average. Analysts say improved connectivity to multiple outer London and Home Counties locations, including Reading, has attracted occupiers to newly developed or renovated mixed-use workspaces in the area.
Paddington has seen major financial sector headquarters deals in recent months, with developments such as Paddington Square, W2, now fully prelet ahead of completion.
Future fallout
Occupier demand for prime and super-prime offices is expected to remain strong in submarkets along the line.
The amount of space taken in new or refurbished office buildings across London represents 60% of all office deals, up from 39% in 2019. This rise has a direct link to the line, as all office completions rated BREEAM Very Good since 2020 have been in locations served by the line.
In the coming months, as economic uncertainty continues but demand for best-in-class space looks set to prove unwavering, upward pressure on rents could be further exacerbated by limited availability. This has been evidenced by low vacancy rates in offices around Tottenham Court Road and Bond Street, at just 1% and 2% respectively.
Just over a year on from the line opening, business leaders say its benefits are clear. However, more time is needed to fully understand the long-term impact it will have on the capital.
“We are yet to see a lot of the benefits that are going to come from people working out the sorts of jobs they can now take, for example in central London or Canary Wharf, or how they can travel from places further afield, which would have been much more difficult to commute from,” said Jan.
The lessons learned from Crossrail can then be taken and carried forward into the proposed north-south Crossrail 2, he added, where the primary struggle will be “convincing businesses that it is in their interests to build” and invest in the next phase.
Jan said: “The funding mechanism worked for Crossrail 1. It is the same mechanism in theory, but Crossrail 2 has a different impact. What we have to do is work really hard at maximising the housing that would come from Crossrail 2, because employers know in the long term that’s a great way to help them in terms of the cost of living crisis and attracting and retaining talent… If we can boost the housing numbers from that line, I think everybody can get behind it.”
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