rental costs

Cost of Office Space in London – Startup Survival Guide

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A daytime view from the lush and expansive green surrounds of Greenwich Park towards the skyline of London’s business district. The Greenwich area is to the south-east of central London, and the cost of office space there is much more affordable than the city’s core, ideal for startup survival if they are cash-strapped. Image at LondonOfficeSpace.com.

Cost to Rent Office Space in London: At-A-Glance

Aspect Central London Outskirts/Outer Boroughs
Cost High rents and high business rates. £70-£88 / sqft for Grade A office space in The City. Lower rents and overheads. Averages of £30 / sqft for North London outskirts locations.
Startup survival Prone to burn through capital Extended runway boosts resilience
Brand signal Conveys prestige and trustworthiness Matches modern and agile brand narratives
Ideal sectors Finance/Insurance/Legal startups Tech and creative 

For startups in London, choosing an office location isn’t just a logistical decision: it’s a strategic move with real implications for cost control, client perception, and long-term survival. The choice between setting up a serviced office space in central London postcodes or in the outskirts is often one of the most important financial decisions a company will face at its earliest stage.

To help with that decision, in this article, we offer a data-driven analysis of the pros and cons of each option to rent office space, comparing costs, survival rates, and brand impact from central London and outer borough offices.

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5 Expert Tips on the Best Way to Find Commercial Office Space to Rent in London

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A late afternoon view of St Paul's Cathedral between the glass sides of two buildings. Image at LondonOfficeSpace.com.

Finding the right commercial office space in the UK’s bustling cities, especially in London, is not just about square footage or the number of rooms; it’s about discovering a place where ambitions meet opportunity, where businesses can thrive and flourish. The right office spaces can inspire creativity, improve productivity, and make a lasting impression on clients and partners. In contrast, a poorly chosen space can lead to inefficiencies, decreased morale, and even lost opportunities.

We understand that the journey to finding the right commercial space can seem daunting, especially with the vast amount of options in London. However, with the right approach and guidance, this process can be streamlined and even enjoyable. As part of our commitment to support businesses in their growth journey, we’ve crafted this guide to simplify the process. Our promise to you is straightforward: by the end of this post, you’ll have a clear, step-by-step roadmap to navigate the London commercial real estate market with confidence.

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Hot Desking & Renting a Virtual Office in London

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Hot desking and virtual office in London example co-workspace with business women working on PCs and laptops at separate workstations image at LondonOfficeSpace.com.

What is Hot Desking?

Hot desking is a relatively new form of office space allocation that maximizes the available space by allowing multiple users to use one workstation. Since workstations were only used during a fraction of the working day, hot desking emerged to allow employers to maximise the amount of space available.

Hot desking is preferred by organizations known for their flexible working cultures, and it is a cost-effective option for businesses in areas such as Central London where high commercial real estate prices are the norm. In business centres, hot desks can be rented for different periods, ranging from an hour to a month or longer.

Hot desking fosters a corporate culture of sharing and collaboration, making it easier to exchange ideas and brainstorm with staff from different departments and areas of expertise. Renting a hot desk in London for a day, week, month, or however long is required, encourages creativity and allows for access to top flight amenities such as professional meeting room hire and community networking events.

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East London Office Space Rental Costs & Vacancy Rates 2021

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East London offices are home to a diverse mix of tenants, involved in sectors ranging from industry to manufacturing, technology, banking, and finance. Office-based businesses are attracted to this area due to its competitive rental rates and access to local talent.

2021 started off in East London with average prime rents of £45 per square foot. Rates for tenant controlled space were slightly lower at £42 per square foot. Asking rents were one of the few indicators that remained stable along with incentives, which currently amount to 30 months rent-free for office leases of 10 years or more.

Although rental rates experienced little changes during Q2 2021, they’re expected to decline by 10-15% by 2022, a figure substantially higher than in other London sub-markets.

As for vacancy rates in East London, they spiked to nearly 12% during the first three months of the year. Although this number is high, it’s still lower than the record-figure of 13.8% reached in 2020.

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South London Office Space Rental Costs & Vacancy Rates 2021

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The South London office market has followed a slightly different trajectory to other parts of London, as it began to be developed later than other areas. Defined office space clusters in South London are relatively new, and the vast majority are located in or around the SE1 postcode. This area has a strong appeal for office-based companies involved in media and creative sectors, and has a positive balance between supply and demand.

However, South London hasn’t escaped the effects of pandemic-related restrictions. Overall office availability has increased by 20% in just one year, although top-quality offices are still holding their value. The same can be said about rent-free periods, which stand at 24 months for office leases of 10 years or more. At the time of writing, overall rental rates for Grade A offices in South London are in the mid £70s per square foot. Office units of 5,000 square feet and above may experience a rental decline between 7.5% and 12.5% by the end of Q2 2022.

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London City Fringe Office Space Rental Costs & Vacancy Rates 2021

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London Fringe markets have a diverse occupier profile, from startups in the media and creative sectors in eastern areas like Hackney, to established tech firms in and around the Old Street roundabout. Until recently, commercial property in this area was in very high demand from both newcomers to the city and companies who relocated from other parts of London.

Although demand for offices in the City Fringe is still there, Brexit and pandemic-related uncertainty has put a damper on the area’s growth trajectory. In this area, overall vacancy rates have increased from under 6% to over 9% in the past year, and availability for the City Fringe sub-market is just under 12%.

The following is an area-by-area update on the state of City Fringe offices during 2021:

Clerkenwell

Clerkenwell is part of London’s Tech Belt and has a strong presence of office-based businesses primarily involved in design, architecture, media, and technology.

This sub-market started 2021 with signs of improvement in take up activity, however, take up levels are still more than 50% below the area’s ten-year average. Prime office headline rents average £75 per square foot, rising to over £110 once business rates are added.

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West London Office Space Rental Costs & Vacancy Rates 2021

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The West End is one of London’s prime areas for commercial real estate. This market has also been one of the most severely affected due to pandemic-related restrictions, which were felt sharply in addition to the uncertainty created by Brexit.

At the start of 2021, the general situation in the West End was marked by a 91% increase in availability compared to the previous year’s figures. More than 7 million square feet of office space were available in Q1 2021. Vacancy rates for the whole of West London were estimated at just over 8% in early 2021, which is double the rate of the Q1 2020 figure.

Both factors combined led to a slight decrease in prime headline rents, which were calculated at an average of £110 per square foot in Q1 2021. The downward trend in rental values is expected to continue into 2022 with a rent decline forecast between 7.5% and 12.5%.

The majority of deals that recently took place in this market came from the professional services sector and involved small offices of 5,000 sq ft and under. On the whole, occupiers still hesitate to commit to large spaces and/or long leases.

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City of London Office Space Rental Costs & Vacancy Rates 2021

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2021 started off with gloomy forecasts for the London commercial property market. According to market analysts, the outlook for the first half of the year was to be dominated by soaring vacancy rates, which were expected to reach a 10-year-high.

In Central London, changes to vacancy and supply rates have certainly been a constant for the past few quarters. In this part of the city, increasing vacancy rates have been mainly driven by the release of large amounts of secondary and Grade B space.

Earlier in the year, vacancy rates in the City were slightly over 10%, but supply was still rising, so they were expected to continue increasing. However, the second quarter arrived with a decline in vacancies, which ended up averaging 8.7% across the City. Despite the improvement, at more than 6.5 million square feet, these are the highest availability rates since mid-2012.

The second quarter of the year also brought some improvement in office take up rates. While these are still significantly below the ten-year average, there was a quarterly increase of over 20% across central London.

However, demand remains rather weak and take up for Central London offices is largely down when compared to 2020 figures. Although demand is weaker, it is still there with an increased focus on quality office space, whether it is new, refitted, or retrofitted to a high standard. The majority of demand so far has come from the public sector, professional services, insurance, and financial services companies.

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