Being one of the world’s top business hubs, Central London offers a diverse array of office spaces tailored to the needs of modern businesses. Having said that, the city’s office market is constantly being shaped by various economic and demographic trends. In this article, we explore the current trends and factors shaping the office space market in Central London.
Demand for Office Space
Demand levels in the Central London office market have exceeded forecasts, reaching new record highs in early 2024 relative to the past 10 years. Data from early 2024 shows appetite for Grade A offices accounting for 70% of total transaction volume in Central London.
Occupier demand for quality space is evident in the disparity between vacancy rates for different office asset classes. For example, while in the City vacancy rates average 9.5% for all classes, new build vacancies are significantly lower at just 1.4%. Moreover and further confirming the strong demand for new offices, pre-let rates are high for new Class A office buildings, especially among financial services occupiers, as many developments are fully let by the time they’re released into the market.
In terms of office size, most demand is concentrated at both ends of the scale: offices under 10,000 square feet and those 50,000 sq ft and above.
The majority of demand comes from banking, finance, corporate, TMT, and professional services companies, so the occupier profile mostly remains unchanged from recent, previous years and the ten year average. More specifically, FinTech, law and accounting firms, IT and media businesses are responsible for most of the take up, targeting amenity-rich and centrally located offices with sustainable features.
Rental Rates for Central London Offices
In late 2023, rental rates for Grade A offices remained mostly flat in all sub-markets. Here’s a detailed breakdown of per square foot prices:
City £70-£90
City Fringe £65 to £80
West End £85 to £95
Mayfair – Marylebone £100 to £150
Grade B offices:
City £60-£70
City Fringe £55 to £65
West End £60-£70
Mayfair – Marylebone £85 to £95
Source: https://k2space.co.uk/knowledge/office-rent-london
New Office Developments
Central London office construction has resumed after the slowdown and subdued leasing activity caused by lockdowns. And as of late 2023, the number of projects under development was at its highest since 2005, with 5 million square feet underway and a further 5 million scheduled to start soon. Across the entire Central London area, the construction pipeline amounts to 15 million square feet in 124 projects.
The most notable office development projects in the pipeline include:
- 10 new office towers in the Square Mile.
- 55 Bishopsgate, an 800,000 square feet development that will also incorporate public space with access to a rooftop and an urban garden.
- 55 Old Broad Street, a mixed use development with 360,000 square feet of office space in 23 storeys.
- 40 Leadenhall, with 857,000 square feet featuring private offices, coworking, retail and wellness facilities.
Also worth mentioning is the trend towards sustainable features in new office construction projects, which also makes financial sense for owners and landlords given that offices with the best BREEAM ratings come with higher premiums of up to 12% for offices with an Outstanding rating.
Refurbishment Projects
Sustainability in offices is also a theme applicable to office refurbishments. Changes to the Minimum Energy Efficiency Standards dating from April 2023 require an upgrade to at least E level (and gradually to C by 2030) in order for offices to be let, so many property owners are targeting the new standards in their refurbishment plans.
In the City, 80% of office units already meet the new criteria, so it’s expected that lease activity will concentrate in this area. In late 2023, there was a record-high volume of properties refurbished at more than 3 million square feet and 6 million city-wide, which are expected to be ready for take up during 2024.
New Office Layouts
Central London companies are redefining their use of office space in line with new work patterns and office worker expectations. One key trend involves changing office layouts where workstation space is reduced in favour of more amenities. While previously 5% of square footage within the average office was devoted to amenities, we’re now seeing percentages shift to 20%.
In addition, new layouts feature more collaborative space, going from 26% in 2019 to 41% in 2023.
Future Predictions
Long-term forecasts for the Central London office market suggest the need for 13 million square feet of office space by 2040, many of which will come with the net-zero tag.
Refurbishment projects are likely to continue on the rise, since their volume already increased by more than 65% in the year between 2022 and 2023. These are seen as a more cost-effective alternative to new builds given rising construction costs and increasingly limited financing options.
As for demand, forecasts suggest that supply will fall short of demand as early as 2026, at least where best-in-class assets are involved. By this date, it’s expected that there will be a deficit of more than 5 million square feet of prime assets.
With regard to rental rates, the highest annual growth levels are expected to be in the City, Southbank, Clerkenwell and Farringdon, all going from 3.6% to 4.2% averages by 2028.
Lastly, there are some emergent sectors that are expected to generate significant demand going forward, including education, life sciences, and climate tech.
Searching for Your Next Office Space in Central London?
Are you in the market for a private office space in a Central London location like the West End or Westminster? Or perhaps you’re exploring serviced offices with flexible terms in a Greater London borough? Whatever you’re after, we offer a diverse range of office spaces that cater to the needs of any business. Don’t hesitate to call us at 020 3965 9617 to speak with our friendly team of office space professionals. Our workspace experts are ready to assist in finding the ideal office space in London that aligns perfectly with your specific requirements.
Additionally, you can check out a variety of our recent articles on business, commercial real estate, and the London office market below.
Emerging Areas for Affordable Office Space: London
Historical Buildings with Offices to Rent in Central London
5 Expert Tips on the Best Way to Find Commercial Office Space to Rent in London
Sustainable Workspaces: How Office Spaces in London Are Adopting Eco-Friendly Practices
Mastering the Art of the Office Seating Plan
Comparing Office Space Cost: Central London vs Outer London
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Harnessing Clean Technology: Five Strategies for Energy-Efficient Office Spaces