So far 2023 has shown a lot of promise for the Central London office market, despite a backdrop of economic uncertainty. As we enter the second half of the year, our Director of Agency (West End), Tom Warren, looks back at what’s been happening in the world of London offices, including the trends that have emerged and our predictions for the next few months.
If you’re an occupier considering your next office move, keep reading to gain insight and advice on how to navigate the current market trends to make them work in your favour.
CURRENT MARKET TRENDS
Continuation of demand for top quality office space: With so many businesses now wanting the office to be an exciting place for staff to come together, we’ve seen a continued rise in the demand for best-in-class office spaces. In some of London’s prime office locations we are finding that demand is outstripping supply for this type of space.
Competitive terms for lower-quality office spaces: In contrast to the best-in-class spaces, we are finding that demand for lower-quality Grade A and Grade B office space is much lower. Landlords of these spaces are offering more competitive commercial terms and shorter leases to attract occupiers, presenting an opportunity for Tenant’s advisors to drive very cost effective and flexible lease terms.
Increasing demand for flexible office solutions: Flexibility is king, and this is evident in the continued and growing demand for flexible office space, including serviced and managed solutions. Occupiers are seeking agile and adaptable workspace options that cater to their evolving needs. These options are excellent for businesses who are unsure on the speed and scale of future growth.
OUR RECOMMENDATIONS FOR OCCUPIERS
Act fast!
For those of you seeking to secure best-in-class space, our advice is to be proactive and act fast. The limited availability and high demand require quick decision-making to secure desired and sought after properties. Occupiers should spend time in advance developing a clear and detailed brief, which will allow them to move quickly once suitable opportunities arise.
Timelines are your friend
To secure the right building, occupiers need to allocate enough time for identifying and agreeing upon terms. This typically requires a timeline of 6 to 12 months prior to the lease expiry, depending on the size and specification of the space. Even if it means implementing delayed lease start dates, you should allow ample time for a thorough search and negotiation process.
Explore off-market options
Relying solely on actively marketed properties may limit the options available to you. To broaden their search and increase the chances of finding suitable spaces, occupiers should actively seek exposure to off-market opportunities. Exploring unconventional avenues can uncover hidden gems that meet their requirements.
Lower-quality spaces present opportunity
It’s worth working with an agent to develop a solid understanding of the market and the motivations of landlords. This knowledge is crucial in negotiating the best possible terms. We can help tenants by identifying these opportunities to create leverage, such as using our extensive knowledge of London office market to order to negotiate very competitive deals for you.
Don’t dismiss longer leases
Occupiers willing to commit to longer lease terms of 5 to 10 years hold a strong negotiating position. Landlords are more inclined to offer better terms to those with extended commitments. Longer leases provide stability, ensuring a steady income for landlords and reducing turnover risk. As with the lower-quality spaces, you can leverage this position to negotiate lower rental rates, additional incentives, and improvements to the property. Longer leases also offer occupiers stability and minimise the disruptions of frequent relocations.
LOOKING AHEAD – OUR PREDICTIONS FOR THE SECOND HALF OF THE YEAR
Lack of supply in certain locations encouraging refurbishment: The scarcity of top-quality properties in certain pockets of London will drive more landlords in those areas to refurbish less premium spaces, providing attractive options to meet the demand for higher-quality office spaces.
Increased supply of plug & play and managed workspace solutions: As demand for flexibility, good quality space and convenience continue to rise we expect to see a rise in both fully fitted ‘plug & play’ space and managed office solutions come to the market. This in turn will encourage the quality of both product and service to further improve.
Expansion of flex provisions and new buildings: Based on current levels of demand we expect to see continued growth in flexible office provisions entering the market, including the opening of new buildings from existing providers and the emergence of new providers giving occupiers a wider selection of options.
Increased number of office buildings being sold: Some landlords of unloved and poorly let office buildings may face debt-related challenges, leading to a decision to sell the asset. This creates opportunity for both owner occupiers and investors looking for value add opportunities to bring buildings back to life with creative and calculated refurbishment works that will attract Tenants.
Repositioning Redundant Office Spaces: Landlords may start repurposing obsolete office spaces for alternative uses such as leisure, medical, education, or residential purposes.
IN SUMMARY
Understanding current market themes and their implications is crucial for occupiers in the London office market. Consider the outlined predictions as we move into the next quarter. If you’re interested in the latest leased and serviced office rates, check out our Q3 Market Rent Guide, or get in touch today for professional, independent advice.
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