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London office market summary
- Occupier take-up increased for the fourth consecutive quarter in Q4. Overall, there was just under 3.2m sq ft of leasing activity, driven by several large commitments in the City. This was the highest quarter of occupier activity since before the pandemic and on par with the pre-Covid 5-year average.
- With ESG high on occupiers’ agendas, pre-lets in the over 50k bracket were focused on buildings set to achieve BREEAM Excellent or Outstanding ratings. There was also evidence of occupiers consolidating employees from multiple offices into one in Q4 which could become more commonplace as companies look to implement hybrid working policies and incentivise staff with more collaborative work environments.
- Overall central London availability decreased from 9.4% to 8.7% in Q4, the first sign of overall supply tightening since the pandemic began. Improved letting activity in the second half of 2021 ensured that many submarkets now sit below the recent peaks in availability reached during the pandemic. However, supply in Canary Wharf remains stubbornly elevated at 14.6%.
- Prime rents were stable in Q4, with no movement across any tracked submarkets. However, the improving occupier sentiment in submarkets such as Mayfair & St James’s and Marylebone, suggested that incentives tightened for the first time since the pandemic began. The lower bound for incentives shifted in by three months, and now stands at 21-24 months’ rent free on a 10-year term for both submarkets.
- Complications in global supply chains for construction materials as well as general inflationary pressures and labour shortages meant multiple schemes which were set for delivery in Q4 2021 were pushed out to 2022. The overall pipeline for 2022 now totals 8m sq ft, although there’s the potential for some of this space to slip as supply chains remain stretched.
- Investment activity in Q4 was hampered by Omicron-related restrictions and the total volume was just over £2.5bn, a fall of 25% on Q3 and 18% below the 5-year quarterly average. UK based investors were the most active in London offices, accounting for £1bn of acquisitions, with a respective 90/10 split between property companies and institutions.
Confidence has returned faster than anticipated to the leasing market and we have seen robust levels of occupational activity in the past quarter. With hybrid working the favoured approach for most, occupiers sought out best-in-class space with an emphasis on incentivising employees back while also offering more attractive space to collaborate and host clients and events.
Rhodri Phillips, Partner
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