Companies are taking shorter leases and less space as uncertainty prevails in light of COVID-19, but demand for office space remains strong.
The coronavirus pandemic and the wave of remote working that came with it have diminished office occupancy in Central London as many workplaces remain vacant or operating at reduced capacity. Nearly one third of the UK’s workforce has returned to the office, compared to neighbouring European countries with a return rate between 70-80%.
While the economy has decreased in size, experts are still predicting recovery with London and regional property markets expected to see rental growth beyond COVID-19. Our article on the cost of office space in the UK takes a closer look at renting office space in key regional locations across the country.
The high-demand for both flexible and Grade A office space is continuing to tempt investors to the London market, but the full extent of COVID-19’s impact on the market is yet to be seen as structural and behavioural change in the market is still in early stages.
|Borough||Grade A Rent (per sq ft)||Grade B Rent (per sq ft)|
|Knightsbridge||£80 - £95||£55 - £65|
|Hammersmith & White City||£45 - £55||£35 - £45|
|Victoria||£72.50 - £77.50||£57.50 - £62.50|
|Paddington||£70 - £75||£55 - £65|
|Chiswick||£45 - £55||£35 - £45|
|St. James’s & Mayfair||£105 - £120||£67.50 - £82.50|
|Covent Garden||£75 - £82.50||£55 - £72.50|
|Soho||£80 - £97.50||£60 - £72.50|
|North Oxford Street (East & West)||£80 - £85||£60 - £70|
|Midtown||£65 - £82.50||£50 - £67.50|
|Holborn & Bloomsbury||£62.50 - £70||£62.50 - £65|
|London Bridge & Southbank||£65 - £72.50||£55 - £60|
|City||£70 - £82.50||£67.50 - £75|
|King’s Cross & Euston||£65 - £77.50||£50 - £67.50|
|Clerkenwell & Farringdon||£70 - £80||£55 - £65|
|Shoreditch & Old Street||£65 - £75||£50 - £57.50|
|Whitechapel & Aldgate||£50 - £60||£35 - £45|
|Hackney & London Fields||£35 - £42.50||£25 - £32.50
|Stratford||£40 - £45||£30 - £35|
|Canary Wharf||£50 - £55||£35 - £40|
|Battersea & Nine Elms||£35 - £40||£20 - £30
|Camden & Kentish Town||£45 - £65||£40 - £50|
These costs are a guide provided by local commercial property experts and rent reports. Costs are updated each quarter, and are subject to change.
Summer is typically a quiet period for the London office market, but this year saw Central London take-up fall to new lows as a result of lockdown measures – the investment market paused in Q2 with the lowest figures ever recorded. Correspondingly, availability has increased to the highest it’s been in the last 10 years. Despite the dip in the market brought about by COVID-19, a recovery is predicted in 2021.
The first half of 2020 saw the London office space market shift from favouring landlords to favouring tenants. Shifting supply and demand are slowly influencing the range of available space and the rental price of office space across London, but demand for high-quality space remains steady. Lease lengths are decreasing, with the average commercial office lease contracting by ten months between February and June according to Re-Leased. Flexible workspace has seen a similar fall in contract length with companies looking to occupy space for shorter periods than ever before.
The amount of grey space, or tenant-controlled space, in London is rising incrementally, just as it did after the 2001-02 stock market crash and the 2008 financial crisis. Experts say that the current amount of grey space on the market is not likely to impact rental levels in London, but have also warned that this may change. Businesses are using grey space to create new opportunities and availability where demand used to far outweigh supply; subletting grey space provides businesses with an extra source of income and offers tenants a higher degree of flexibility.
London is leading the reinvention of office space as companies grapple with changing space requirements and the newfound flexibility of remote working. With such a large population of office-based workers in the city, it’s likely that London will play a fundamental part in shaping the look and feel of the post-COVID workplace.
The pandemic has accelerated pre-existing trends in workplace evolution focused on improving wellbeing, sustainability and connectivity. Certifications like SKA Rating, BREEAM, Fitwel and WiredScore, that were already great indicators of the quality of the built environment, are becoming an even more integral part of attracting new tenants.
Companies are investing in workplace updates that create COVID-secure environments while preserving the aesthetic and social integrity of the office. The main purpose of workspace is shifting from being the place where employees go to work, to providing a place where people can come together in the name of innovation and collaboration.
Flexibility remains a necessary part of businesses’ ability to navigate uncertainty: flexible workplace strategies ranging from ‘hub and spoke’ space models to flex space take-up are providing businesses with the fluidity they need in order to support a distributed workforce.
London is in a better position to weather the rest of the pandemic compared to other regions in the UK and is expected to see the smallest drop in gross value added. While forecasts predict any decrease to be short-lived, the full impact of COVID-19 on unemployment and businesses is uncertain and a full recovery is almost impossible until a vaccine is widely available.
Increasing office occupancy in Central London is uniquely difficult because of the city’s reliance on public transportation. Peak commuting times regularly see overcrowded tubes, trains and buses: balancing normal office use levels with social distancing across transportation would require significant infrastructural changes or a heavy reliance on shift working.
The majority of businesses have adopted a hybrid working model with a combination of remote and office-based work. The proven success of remote working has brought about a culture shift in favour of employee wellbeing and work/life balance, and it’s becoming clear that staff will want to retain the ability to work from home after the pandemic. This permanent increase in flexibility is enabled by technology and healthier trust levels between management and employees.
Remote working is likely a permanent addition to most workplace strategies. Businesses are reviewing their space requirements in light of the recent shift in working patterns and finding greater efficiencies with a focus on flexibility. As leasing patterns continue to shift, competition to attract and secure tenants will increase. Businesses should plan their property searches carefully by talking to experts well in advance of a project kick-off in order to make informed decisions.
Our report on average office rent rates for Grade A and Grade B space in London, as well as a market overview and analysis of prime rent rates across London submarkets.