London office lettings see a surge in 2021
With all the headlines about working from home, you’d be forgiven for thinking that demand for office lets would be at an all-time low, especially in London. However, the city appears to be bucking the trend and while footfall on the capital’s streets certainly seems to be lighter than in previous years, businesses still see London commercial property as desirable.
Recent assessments of the capital’s commercial property market have seen a positivity permeating every aspect of commercial lettings, with expenditure of nearly £3billion over the last quarter. However, it’s smaller spaces that are at a premium, as businesses re-evaluate their working practices. Remote working has meant that large, expensive-to-run offices may not be viable for businesses anymore, and in fact, may represent a serious drain on profits. The alternative is smaller, better quality working spaces that are more economical to maintain. This fits in with the move towards flexible working, hot-desking, and remote working. It may not suit the coffee shops that rely on the London workforce to keep them going, but this shift in focus certainly seems to suit both workers and their bosses.
In Q3 of 2021, property agent JLL reported that around £1.5billion was spent on commercial property rents in the City, with a further £1.4billion in the West End. This represents a considerable increase from the same period a year earlier when Lockdown 1 had sent waves of uncertainty through the commercial sector. It was also more than the total spent in Q3 of 2019 (pre-Pandemic), when London businesses were concerned about the Brexit effect.
The increase in London commercial property interest hasn’t just been driven by small companies looking to ‘downsize’ their operations and reduce their overheads. Larger property deals have also pumped in billions into the London economy. With big hitters like Derwent London buying up major locations such as 250 Euston Road, there’s no sign that investor nervousness has spilled over into the end of 2021. Analysts watching what the major investors are doing believe that savvy commercial property buyers recognise the shift in working practices, and are confident that providing thousands of businesses with smaller, lower-rent options is the way forward.
Getting back to work
While the Omicron variant may have put the brakes on a full-scale return to the workplace temporarily, there is no doubt that both workers and business owners are eager to get people back in the office again. The difference now compared to pre-pandemic times is that they’re also aware that there is a greater need for flexibility to ensure businesses can keep operating efficiently. So those modern, high-tech and high-quality letting options are far more attractive, especially if they put businesses right in the heart of thriving areas such as the City or the West End.
The other driving factor for investors is that London is being seen increasingly as a strong location for overseas investors. The impetus to provide commercial lettings to businesses has been driven by a far more positive post-Brexit feeling. Trade deals are being struck, and the financial sector appears to have resisted the urge to up sticks and head across to Europe. The boom in the technology and media sectors is drawing in a whole new generation of businesses, with an explosion of start-ups and new ventures – all of whom need commercial lets in London to operate.
It’s no wonder, then, that investors are confident that commercial property in London represents a buoyant and potentially lucrative marketplace with high demand guaranteed for at least the foreseeable future. With a busy final quarter on the cards, it looks like commercial lets in London will have a very strong finish to 2021, and even healthier prospects for 2022.
Robert Rosenberg, Partner at OGR Stock Denton LLP, said: “It appears that, despite everything that has happened in the last 2 years with working from home, tenants have finally concluded that a Central London office brings in talent together from all parts of London giving their business more dynamism. London and New York have long been places where talented people meet and people are taking up office space quickly.
There are still some good deals for tenants out there but they are fading quickly and Landlords are becoming more bullish.”
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