The London Office Market in 2024 – At a Glance
The central London office market continues to shift in line with previous years’ trends, such as generalised downsizing due to hybrid work arrangements, a flight to quality, and a limited development pipeline. Although the first quarter of 2024 showed evidence of a slowdown in activity, this slow start of the year isn’t concerning considering that the market ended 2023 on a five-year high.
Here are some key indicators that summarise the status of the London office market in 2024:
– Total take-up levels were 2.47 million square feet in Q1, vs. 2.1 million square feet during the same period in 2023.
– Vacancy rates city-wide have increased to 9.5% in Q1 2024, vs. 8.9% in 2023.
– Lastly, the amount of office space under construction also remains stable, with 15.86 million square feet in 2024 vs. 16.75 million in 2023.
Top tenancy sectors in London’s office market
Across London, tenants in the financial services industry are leading transaction volume, at 36% of the total. Next are professional services with 29%, followed by tech, media, telecom companies, with a 17% share.
The distribution is slightly different in the City. Here, insurance and financial services take the lead with a 55% share, which is the highest in 10 years. Tenants in professional services, tech and media have a 17% share each.
In the West End, financial services firms also lead with over 30% of all transactions, followed by serviced office providers. Retail and leisure are increasing their requirements in this sub-market.
Activity levels
By mid 2024, total activity levels amounted to 1.97 million square feet, which represents a 2% year-on-year decrease and a 14% drop from the long-term average. In the City, more than 1.78 million square feet were transacted and a further 1.8 million are under offer.
In the West End, leasing activity remains subdued at its lowest level since early 2021, with approx 755,000 square feet transacted and 1.2 million under offer. The highest activity levels by sub-market are found in Soho and Hammersmith, both with 19% of the total for West End offices. This is possibly due to the low availability in other in-demand areas, such as St James and Mayfair.
So far this year, the largest deal was closed in the Docklands (94,500 square feet), and the second largest was closed in the City (85,300 square feet).
Vacancy rates
Vacancy rates city-wide average 9.5%, showing a slight increase over the previous year.
In the City, office vacancies have stood around the 9% mark, whereas in the West End they are at their lowest since 2008 at around 7.5%. Overall, the highest vacancy rates are in the City and Southbank, except for city core markets (4.9%) and Midtown (3.9%).
The biggest changes in central London office availability on a year-on-year basis have taken place in Docklands and Stratford, where they’re close to a 17% increase, and in the West End with an 11% increase. On the other hand, City and Southbank sub-markets have had a rather stable performance at 2%.
Average asking rates by sub-market
There have been no changes in terms of the sub-markets commanding the city’s minimum and maximum average asking rates. The lowest rental rates can be found in east and south east London, whereas the highest remain linked to the West End.
Lowest asking rates (under £50 / square foot)
Docklands £32.5
Stratford £48.5
Mid-range (£51-£99 / square foot)
Canary Wharf, Whitechapel, Aldgate, White City £57.5
Vauxhall £60
Bloomsbury £77.5
Southbank, Midtown £80
Paddington £85
Covent Garden, City Core £87.5
Victoria, King’s Cross, Euston, Clerkenwell, Farringdon £90
Fitzrovia £95
Highest asking rates (£100 and above)
Knightsbridge, Chelsea £100
Marylebone, Soho £105
Mayfair, St James £150
Highest rents achieved in 2024
The City £108 / sq ft
West End £200 / sq ft
Average asking rent by office grade
Grade A office space in the West End continues to be higher priced than comparable spaces in the City, with averages of £79 / square foot in the West End vs. £66 / square foot in the City.
Grade A office rates by sub-market
Battersea, Nine Elms £35
Hackney, London Fields £35
Camden, Kentish Town, Chiswick, Stratford £45
Canary Wharf, Hammersmith, City, Whitechapel, Aldgate £50
London Bridge, Southbank £65
Shoreditch, Old Street, Midtown £70
Holborn, Bloomsbury £72.50
Paddington £75
Victoria, North Oxford Street, Covent Garden, Clerkenwell, Farringdon £80
Knightsbridge £82.50
Soho £85
St. James’s, Mayfair £115
Grade B office rates by sub-market
Battersea, Nine Elms £20
Hackney, London Fields £25
Stratford £30
Whitechapel, Aldgate, Chiswick, Canary Wharf £35
Camden, Kentish Town £40
Midtown £50
King’s Cross, Euston, London Bridge, Southbank, Shoreditch, Old Street £55
Covent Garden £57.50
Knightsbridge £60
Victoria, Paddington, North Oxford Street, Clerkenwell, Farringdon £62.50
Soho, Holborn, Bloomsbury £65
Top 5 highest rents for Grade A offices
St. James’s & Mayfair £140
Soho £97
North Oxford Street, Clerkenwell, Farringdon £92.5
Covent Garden, Knightsbridge £97
Top 5 highest rents for Grade B offices
St. James’s & Mayfair £92.5
Soho, Clerkenwell, Farringdon £77.5
Covent Garden, Knightsbridge £75
*Source: https://area.co.uk/news-knowledge/the-cost-of-office-space-in-london
Average asking rents (3-month view)
March 2024
City £69 / sq ft
West End £85 / sq ft
April 2024
City £72 / sq ft
West End £86 / sq ft
May 2024
City £66 / sq ft
West End £79 / sq ft
*Sources:
https://www.savills.co.uk/research_articles/229130/356154-0
https://www.savills.co.uk/research_articles/229130/362753-0
https://www.savills.co.uk/research_articles/229130/363661-0
Annual changes in asking rents
The leading areas in rental growth are the City and Southbank, with a year-on-year increase of nearly 17%. This stands in contrast with other London office sub-markets, like the Docklands and Stratford, where rents have increased by an average of 4.5% between 2023 and 2024.
Looking exclusively at Grade A office space in the City and the West End, we observe the steepest rent increases since 2019 in Mayfair, St James, Farringdon, and Clerkenwell. The only exception to this upward trend has taken place in Shoreditch, where rents have been declining since 2021 relative to 2019.
Also worth mentioning are average rental growth increases of 6% for offices in Grade A towers.
Active demand
Data from May 2024 shows active demand for offices in central London being 29% higher than the 10-year average, totalling approx 12 million square feet. This seems an ongoing theme, as in 2023 demand was also 25% up from the long-term average.
The biggest surge in demand on a year-on-year basis took place in the Docklands, with a 43% increase. Other notable increases were experienced in the City and Southbank (20%), and in the West End (13.6%).
In terms of office size, the highest occupier demand is for units 40,000 square feet and above. However, in terms of closed deals, units 10,000 square feet and under were the most prevalent transactions in 2024 and reached a record high. This confirms the trend observed in 2023, when this size band also accounted for the most transactions along with office units of 50,000 square feet and above.
Take up levels
City Core offices are in the leading position where take up levels are concerned, followed by City Northern Fringe, City Eastern Fringe, Southbank, and Midtown.
City vs. West End Take Up Levels
In the City: rates showed a 4% year-on-year increase during the first 4 months of 2024 alone. In City Core markets, they are up by 60% from the five-year average.
In the West End: take up levels were down by 25% relative to the same period in 2023 and 35% lower than the ten-year average. This decline was more pronounced in Mayfair and St James, where they dropped by nearly 50%.
Take up levels by BREEAM rating (City)
Excellent 44%
Outstanding 18%
Very Good 19%
Take up levels by BREEAM rating (West End)
Excellent or Outstanding 42%
*Sources:
https://www.savills.co.uk/research_articles/229130/362753-0
https://www.savills.com/research_articles/255800/363661-0
Investment market
The office investment market struggled in 2022, and although there has been an improvement over the 2023-2024 period, the figures are still down city-wide. In early 2024, investment volume was more than 60% lower than the ten-year average, and in the City it reached one of the lowest traded values since 1996.
The general trend of investment activity is towards the acquisition of small lot sizes (under £50 million) and ESG-enabled properties, as these show the highest rental growth projections. City-wide, the average lot size is down by half compared to the ten-year average at £33 million.
Average prime yields for London offices
In the City 5.25%
In the West End 4%
In the Southbank 5.25%
In the Docklands and Stratford 7.5%
Investors by region of origin
UK 35%
Europe 22.7%
APAC 12.5%
North America 11%
*Source:
https://www.savills.com/research_articles/255800/358996-0
Office inventory under construction
The main trend to highlight is the construction volume for large-scale office developments, which reached an all-time high during the first half of 2024, against a marked decline in small office construction. This signals an important change over the dominant trend since 2007.
Construction levels were dominated by activity in the City and Southbank, totalling approximately 9 million square feet. In the West End, offices under construction amount to 6.2 million square feet. Inventory under construction is minimal elsewhere in London.
Inventory under construction – Year-on-year change
West End: 5.7%
The City and Southbank: -7.8%
Docklands and Stratford: -45.9%
New office deliveries
There was a very limited volume of new deliveries city-wide, with totals amounting to approximately 1.5 million square feet.
Deliveries by area
City, Southbank and West End: around 500,000 square feet each
No deliveries in the Docklands and Stratford
New office delivered (YoY change)
City-wide 115%
The largest annual change was in West End, where 2024 figures represent a 282% yearly increase.
Office market outlook
Analysts are mostly optimistic based on the current requirements for office space, which were already at a ten-year high at the start of the year and increased by a further 5.7% during Q1 to reach 12.6 million square feet.
The main trend shaping the short-term outlook is the likelihood of undersupply. This is considering average annual take up rates in the region of 5.7 million square feet, and an existing pipeline of 10.6 million square feet. Based on these figures, an undersupply of 5 million square feet is likely to be a reality by 2026, due to limited new deliveries and the large number of lease deals that will be expiring in the next few years.
In terms of asking rents, they are expected to increase over a 5-year term due to limited availability. Estimates situate the leaders in rental growth to be City Core markets, where increases are expected to exceed 4%. Rental rate hikes are also expected to be high in Clerkenwell, Farringdon, Southbank, Fitzrovia, Strand, and Covent Garden – all with predicted rental growth rates of around 3.5%.
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