Rising Demand for Office Space in Central London
Research just released by property services group, DTZ is showing a significant increase in demand for office space in the Square mile and Canary Wharf, pushing rents higher and putting more pressure on supply.
The report highlights that there is now 17% less office space available in the City of London than there was this time last year, with rents rising to their highest level for 11 quarters, lack to pre-recession levels.
Rising rents in London’s West End are forcing businesses to consider more competitive options in fringe locations; Publicis (the parent company of Saatchi & Saatchi) is making the move from Charlotte Street W1 to EC1 and the Danish toymaker Lego are taking 25,000 sq ft in the City’s New Fetter Place.
Richard Howard, DTZ’s Head of Central London, said that Central London and the fringe financial hubs will remain a prime target for office relocations, saying, “A number of large deals have been completed in the first half of 2014 and this uptick in leasing activity is expected to continue.”
However, the biggest increase in take-up was seen in the fringe market of the Docklands. Some 679,000 sq ft transacted in the area over the first six months of the year, up nearly 600% on the same period in 2013.
The north-west fringe of Central London has also become a target for company moves, with office space availability down 53%.
The research is really interesting; on the one hand it highlights what we all know – London is back! Business in the capital is booming and demand for good quality office space is pushing rents northwards. The situation is compounded by a lack of good quality supply partly as result of developments that were put on hold in the recession and also because of the tide of office blocks being converted for residential use. But there are still great opportunities in the market and particularly for those tenants who are willing to be a bit flexible on location; very attractive terms can still be secured.
Philip Pearce, an executive director at property firm Savills, concurred, saying that gap between rents in the City and Canary Wharf has “definitely risen further recently. Canary Wharf is your last value location, it is demonstrably cheaper.”
Demand for the Docklands and the Square Mile is still coming primarily from the financial sector - ING Bank has leased 135,000 square feet at 8-10 Moorgate, while the asset manager M&G Investments pre-let 323,000 square feet on Fenchurch Street – but what is more interesting are the non-financial organisations now spotting opportunities in the market and adopting a more flexible approach to location.