The 3 figures that explain the slow rebound of the London office market
Occupant consulting firm DeVono has released its latest quarterly office market update. The numbers complete the picture for 2021 and indicate trends to watch in 2022.
This paints a picture of a market not rebounding quickly.
These are the three numbers you need to know.
1. Leases are for smaller suites and shorter terms
The trend towards shorter rental terms and smaller transactions has been underway for some time. The pandemic and its consequences have now hardened the trend towards a new normal.
DeVono said lease terms were shortened in 2021, averaging 5.5 years, down 8% from pre-pandemic conditions.
At the same time, the average size of an office contract in 2021 was 6,667 SF. That’s slightly up 5% from the 2020 average, but down 13% from 2019.
The number to remember: 5.5 years
2. The flexible office market is blocked
There was no movement in the price of serviced Class A office rates in London in the last quarter of 2021. The average price in London remained stuck at £739 per office per month.
Providers of serviced offices offered super flexible offers in 2020 and 2021 with the aim of attracting new tenants: this limited prices.
This period might be over, but don’t expect prices to skyrocket. “As the best-in-class centers begin to secure more business, we expect the upper end of prices to head north, particularly in the West End submarkets which are more sensitive to occupancy fluctuations,” DeVono said.
But the company isn’t so bubbly about the price outlook for Class B serviced office space.
Operators are cautiously looking for new space, subscribing to 460K SF in 2021 – a sharp drop from the 2.1 million SF recorded in 2019 but up sharply from 2020.
DeVono indicated that the big shift will wait until 2023.
Number to remember: 460,000 square feet for the new floor space of the flexible operator in 2021
3. Availability is skyrocketing, but adoption is not
Category A availability in Q4 2021 is up 31% year-on-year, but closing deals aren’t keeping pace.
Availability levels fell in the fourth quarter in key fringe markets, but only by a hair’s breadth. Midtown fell 1%, Southbank 3% and E1 was the best performer, down 10%.
However, over the year, availability in Midtown, Southbank and the eastern fringe is on average 23% higher than at the end of 2020, a sign that the market has not warmed up.
The latest quarter showed that “the wind has been cut off the sails of the rapid growth seen earlier in the year,” DeVono said, adding optimistically, “our latest research suggests we may have reached a tipping point.” changeover and 2022 could see a greater reduction in availability.
Docklands availability remained at 2.7 million square feet, the highest volume since 1996, with the prospect of even more space returning to the market as businesses rethink.
Availability in the City and West End are now at levels last seen in 2010-11, City at 8.5 million square feet and West End at 5.1 million square feet. Narrowing that down will be a “slow and long process,” DeVono conceded.
Figure to remember: 8.5 M sf available in the city, the highest since 2010-11