The Cost of Office Space in London 2022 | Oktra
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  • The Cost of Office Space in London 2022

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  • As companies return to the workplace, there is an expectation that new ways of working will determine how businesses occupy their office space. Business leaders will be looking at both the short-term and long-term solutions for their offices as new working patterns are established.

    The lifting of the restrictions at the start of the year felt significant as we returned to some level of normality. While there was still a lot of uncertainty at the start of the year, increased job availability and pent-up demand is driving office market take-up.

  • Many businesses are expecting 2022 to be a year of flux as it provides an excellent opportunity to assess new occupational strategies, such as hybrid working, to look at how people adapt to the changes in working patterns. The office has withstood the turbulence of the pandemic and has undergone an evolution during the process. It will be different for each sector but the professional services sector has consistently dominated take-up in London – being responsible for 25% of take-up of available space.

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  • Occupancy costs per seat are set to increase because of enhanced services, functionality and technology that has been built into space. There is also an expectation that dedicated collaboration space will have a general increase from an approx. 10% allocation to approx. 25-45% allocation, dependent on occupancy levels.

    The London office market has experienced meaningful change within the last year and with new developments in the workplace, businesses are increasingly looking for the best options for their office space. We have collated a cross-section of key market developments that help outline the current state of London office space and the factors affecting it.

  • The cost of office space in London in 2022

    BoroughGrade 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.

  • Redefining the new role of office space

    Many companies have committed to flexible working practices, but these are not universally applied. The pandemic has led to a repurposing of the workplace which has resulted in a more fluid environment. Occupiers are still navigating new ways of working and looking to improve the office experience for employees. Workplace patterns will dictate office design, usage, size and location. To achieve accurate insights and business-generated data, companies will be reliant on accurate analytics from sensors and smart building infrastructure.

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  • The determining factors driving these decisions are culture and leadership – workplace rules and strategies are being implemented based on individual business circumstances as it is no one-size-fits-all. This is pushing companies to start gathering workplace data to help inform new strategies. This change in space allocation will not happen immediately, but with an increased demand for these types of space, this is the standard that office design is expected to follow.

    Organisations will look to create meaningful experiences in the office by positioning their workplace as a platform to build a community, enable collaboration and support talent attraction and retention. Reports and surveys suggest that employees (especially the new generation) would be willing to turn down a job that does not include a work from home option. This could impact future hiring strategies, productivity and wellbeing but until this has been monitored over an extended duration, it is hard to know the full chain of events that will follow.

    As businesses seek greater flexibility within their workplaces, they will also need to consider the permutations of their leases. The ability to achieve greater flexibility in leasing office space has been hard fought for and although the range of solutions available to businesses is now as diverse as we have ever seen, conventional leasing remains rigid. Leases offering flexibility for tenants are becoming more popular. Tenants are opting for shorter leases in ‘plug and play’ space, which is streamlining their processes for occupying new premises, without the long-term commitment.

  • Increasing quality of space

    The London market has more available space than at any point over the last five years, which will create a greater divide between prime and lower quality office space. Newly built or refurbished buildings will remain the most attractive option for tenants.

    The provision of CAT A+ and ‘plug and play space from landlords continues to increase as there will be a greater focus on landlords updating stock. Landlords are looking to reduce voids and offer rent-free inducements to increase the potential for occupier retention. The serviced office market is poised to capitalise on the shift in working trends and workplace expectations in 2022. As demand increases for all serviced office solutions providers are once again on the lookout for spaces.

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  • There is an expectation that occupiers will demand new, efficient buildings. This will lead to a decline in interest for poorer quality space, leading to greater separation in the market. Tenants are prioritising ‘less but better’ space, which will contribute to the increased activity for new and refurbished property. It is still seen as a huge benefit to create a bespoke workspace from scratch.

    Tenants and occupiers are faced with longer lease commitments and higher rents when looking to take prime space. This is forcing them to weigh up the long-term benefits of leasing better quality space so that they can achieve their corporate goals rather than only focusing on the bottom line. Sustainability and wellbeing targets are expected to be crucial factors that provide greater value, over saving on any initial space costs.

    To help improve the quality of space, tenants and landlords will invest in technology and sustainability. Increased technology within spaces will be essential to help improve uptake and offer tenants greater functionality in line with hybrid working. Many proprietors are expected to embark on a net-zero journey and take a more active role in ESG policies. This is all part of active investment in helping move the built environment towards a net-zero goal by 2030.

  • Investment activity

    As a result of lockdown measures, occupier and investment activity paused which saw Central London take-up fall to new lows – investment figures were at the lowest ever recorded in the Capital. The UK office investment market has been boosted by the loosing of travel restrictions and it’s expected that investment volumes will increase by 20% year on year. UK Investment stock remains high which will drive investment volumes with activity across Central London edging closer to returning to 10-year average volumes.

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  • In Q4 2021, UK investors were the most active group, with £1bn of acquisitions. Value-add product was also a feature with investors renowned for redevelopments notably active. However, if inflation continues to rise, investors will be more apprehensive due to the damaging effects on property returns.

    Businesses and landlords came into 2022 with a degree of uncertainty but as time goes on, regular business activity will make a comeback in the Capital. With many businesses only just returning to their offices for the first time in two years, there is an element of trying to find answers without all the information. Market activity and investment will pick up throughout the year once more companies have had time to plan and implement their new strategies.

  • The outlook for the London office market 2022

    There has been a significant change to the London office market in previous years which is expected to dictate trends and activity for 2022. The most notable change has been driven by the rise in demand for flexibility – this has been led by both employees and business owners. Employees seeking increased flexibility through increase working from home allowances has cemented hybrid working as the go-to solution for many companies. Business leaders are also looking for greater flexibility in their leases. Shorter lease terms provide some relief but there is a demand for expansion and reduction within existing agreements as well as an improved frequency on break clauses.

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  • The role of the office has been scrutinised in line with the increased demand for flexibility but there is confidence that while the office will take on a new role, it will remain a business staple. The expectation is that people will return to the office 2-3 days per week and the availability of the office will play an influential role in decisions made surrounding talent attraction, training and development of staff and employee wellbeing.

    While we expect some new outcomes, certain patterns are already beginning to take shape. Landlords are investing in the sustainability of their buildings and improving technology solutions within their properties. This is in response to tenants expecting quality spaces as they refuse to compromise solely on flexibility – the office must provide a balanced, well-considered environment for staff to help draw them back. These things remain crucial for tenants and will play a pivotal role in confidence being restored in the workplace.

    There is currently pent-up demand in the market which underpins the confidence for a return to regular investment activity. Inflation rates pose a slight threat to an immediate return to the investment activity we are used to seeing in London so that will be one consideration. The upgrades that landlords are making to their properties does show promise. The improvements to the quality of space offer incentives for investment which is predicted to steadily pick up once businesses begin to execute their new workplace strategies.

  • The London Office Rent Report

    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.

     

    Download Now
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  • For further advice on the London office market, contact our workplace experts. They can guide you through both tenant and landlord markets in greater detail. Contact us below if you need any help or are interested in more information on our other workplace services.

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