Capita Symonds, a consultancy firm, has released data which shows London has not had such a need for office space since the 1980s.
By 2012, it is possible that office space in the West End could go for as much as GBP 100 per square foot, as opposed to the GBP 70 that it is today, the research found.
“Those who took the plunge and invested in the central London office market over the last 18 months have good cause to celebrate”, said James Gillett, a director of Capita Symonds.
“Two years ago this situation would have been unthinkable”, he added.
It is because of a lack of new commercial space developments lately that this situation has arisen, the report elaborated.
In the first three months of this year, only 12 projects of more than 20,000 square feet were initiated. One year ago there were 39 such deals.
Gillett continued: “Companies were in a great position [two years ago] with a surplus of good space resulting in aggressive financial offers from landlords desperate not to lose tenants. For businesses looking to move, those days have passed – the boot is firmly on the other foot.
“Consequently, occupiers need to consider their options very carefully. Some may be tempted to seek lease extensions for the next two to three years in the hope that supply line will improve.”
Recently, Hong Kong assumed the mantle of the city with the world’s most expensive office space, a title formerly held by London. Office rents in Hong Kong have almost doubled in the past five years.
Editor’s notes: Office rent in London did indeed increase and, in 2022, rent for prime office space in the West End of London reached £130 per square foot per year.
Whilst circumstances in June 2023 are quite different to how they were when this article was originally published, there has been a slowdown in construction project starts.
The reasons include increased construction costs due to supply chain issues partly caused by the Russo-Ukrainian War, as well as the increased cost of financing projects due to high interest rates.
These above reasons have slowed down leasing activity in the short term, however, when the market becomes more active demand is expected to push rents up, particularly for best-in-class space as businesses increasingly opt for space that is enticing to employees, and has ESG credentials.
However, it should be noted that, as of June 2023, there is 3.2 million square feet of office space under construction speculatively in the West End that is scheduled to complete in 2023.