Prime central London office occupier markets remain eagle-eyed ahead of shedding of space

BNP Paribas Real Estate central London office leasing data analysis has revealed the resilience of West End and City markets as workforce cuts and energy performance certificate (EPC) legislative changes look set to impact some of its business sectors and result in the shedding of space.

Q4 2022 data shows that prime rents across the West End climbed 19% from £117.50 to £140 per sq ft y-o-y and have maintained at £72.50 per sq ft for the City. When examining pandemic levels where workforce overheads were last challenged, the West End maintained at £112.50 in Q1 2020 to Q3 2021 where it climbed to £115 per sq ft, whereas City declined from £72.50 to £70 in Q3 2020 before climbing back to £72.50 by Q3 2021.

When reviewing y-o-y take-up by business sector to show occupier shift, the West End saw marked changes. Banking & Finance occupiers increase from 16% to 36% and Professional Services from 10% to 12%. The biggest decline was Media & Tech which tumbled from 41% to 13%. City was much more even tempered and saw Professional Services increase from 43% to 45% and Banking & Finance and Public Sector slip from 15% to 12% and 5% to 2% respectively.

Simon Knights, head of West End agency at BNP Paribas Real Estate commented: “As the economic landscape continues to provide a bumpy terrain, some businesses will reduce headcount. When the new EPC legislation comes into play in April, we will start to see less appropriate stock shed back onto the market. All setbacks need a solution and the demand will continue to drive the upgrades needed for this stock to be re-let. With the big bucks continuing to flock in from the likes of Private Equity & Finance for new and amenity rich spaces, the West End continues to prove why it will rarely bite back, and you only have to look back to see this.”

James Strevens, head of City leasing at BNP Paribas Real Estate added: “Occupational demand for the City has an eagle-eyed focus on quality and amenity with a desire for premium offices offering superior workplace experiences and, of course, enhanced ESG credentials. Professional Services have swooped in as we see Media & Tech losing pole position, and occupiers are showing an increased interest in Cat B ‘plug-and-play’ accommodation across a broadening size range, driven by the need for flexibility, convenience and the avoidance of associated fit-out costs. Who will win in the end? West End or City? I think both are formidable forces.”

Across the West End, Q4 2022 saw a 43% increase in take-up at 1.4m sq ft, bringing 2022 totals to 4.3m sq ft and representing a 58% increase year-on-year, significantly above the 10-year average. Supply decreased by a further 9% to 2.5m sq ft, down from 2.7m sq ft in Q3. Vacancy is at 4.0% (4.4% Q3) and of that Grade A 0.8%. (1.2% Q3). 1.6m sq ft of office space completed in 2022, of which, 45% was pre-let.

City take-up reached 1.2m sq ft across Q4, bringing 2022 totals to 5.5m sq ft which is up 42% when compared to 2021 and in line with the 10-year average. Supply in the City decreased by 5% to 9.0m sq ft equating to an overall vacancy rate of 10.3%. The continued constrained supply of Grade A space led to a reduced Grade A vacancy of 4.3%.

Notable deals in Q4 2022 include Blackstone’s and GSK’s pre-let of c.225,000 sq ft and c.161,000 sq ft at Lansdowne House and Earnshaw respectively (West End), and Clifford Chance’s pre-letting of c.321,000 sq ft at 2 Aldermanbury Square on a 20-year term at £77.00 per sq ft (City).