As London’s Leasing Market Begins To Thaw, One Huge Office Occupier Outlines What It Wants

As the London office market shows tentative signs of growth amid new patterns of work and corporate occupier demand, a combination of hard data and firsthand insight highlights how tenants are likely to act in the coming months and years.

Bigger occupiers will want less space. Smaller occupiers won’t need to downsize. Companies will be even more likely to take prime space.

And the key concerns of one of London’s biggest occupiers come down to flexibility and power resilience. 

That insight comes from Morgan Stanley, the global investment bank that is in the final stages of agreeing to remain at its London headquarters in Canary Wharf. 

“We want flexibility, we want optionality to chop and change [how we use a building], ideally when it suits us,” Adam Blazeby, Morgan Stanley co-head of Europe, the Middle East and Africa real estate services, told the audience at Bisnow’s UK Office Renaissance event. 

“The sustainability credentials, the accessibility for staff, the overall footprint of the space, the flexibility of the lease. The actual rent is quite low down the pecking order for our organisation. It’s those other aspects that make up the [profit and loss] impact for us.”

The event delving into what tenants want and how they are likely to proceed was held at 50 Electric Boulevard, the 200K SF office building at the Battersea Power Station mixed-use scheme recently completed by the Battersea Power Station Development Company.

London's office market is seeing signs of a thaw, with the 3.4M SF leased in the fourth quarter 13% above the 10-year average, according to CBRE data. A further 2.2M SF was under offer at the end of the quarter, in line with the long-term Q4 average, CBRE said. 

In terms of what is coming down the line, VTS Head of UK Research Kuldeep Gadhary outlined what the tech firm’s data on tenant viewings shows. 

At the larger end of the market, firms are downsizing. Large occupiers, those looking for 25K SF or more, have reduced the space they are looking at by an average of about 15% over the last three to four years, Gadhary said. 

But space needs for smaller firms, those looking for 5K SF or less, have remained broadly flat. And though it may be a cliché, the flight to quality is real. VTS data showed that in 2023, 78% of viewings were for Grade A space, up from the long-term average of about 60%. 

“That gap between Grade A and B is definitely becoming a lot broader,” Gadhary said. 

For Morgan Stanley, which easily falls into the large occupier category, its real estate decisions boil down to how the company can use and reimagine its space over the long term.

“We’re looking for optionality and flexibility about the internal demise, the footprint and the regularity of the plate,” he said. “Having the space column-free, for instance, but we operate in a business that is regulated, so we have quite a lot of functions that have to be separated from each other, and we lose space from that.

“Increasingly, we are chopping and changing space on quite a regular basis, taking down walls, putting them up again, redoing cabling. So optionality and flexibility within the demise is important for us.”

Blazeby said that while the way Morgan Stanley uses its real estate hasn’t changed dramatically in the last decade, it is increasing the space for employee amenities by as much as 20% in many of its larger buildings. That includes the addition of gyms and cafés while taking out desks and adding breakout spaces. 

Morgan Stanley is not alone in its requirements, and developers and landlords increasingly need to provide flexibility or risk losing out on tenants in a market that remains far from easy. 

“Tenants want everything they can possibly get to make their decision as easy as possible,” Battersea Power Station Leasing Director Dan Westley said. “As landlords, developers or offerers of space, I think we need to, within reason, be able to provide that.”

Flexibility is on order for Morgan Stanley's return-to-work policy too. Although it has a verbal policy requesting staff come to the office three days a week, including some Mondays and Fridays, it has declined to put that in writing. Blazeby pointed to research from Cushman & Wakefield showing that staff came to the office roughly as often at companies without an official return-to-office mandate as those that imposed one. 

“We've gone from a presenteeism culture to a trust culture, and that has had a huge shift in what we're putting into our space today,” he said. “But we know that it's going to be changing in three years' time, in five years' time, and we don't know where it's going to go after that.”

Morgan Stanley occupies about 800K SF in Canary Wharf across two buildings, and it has been reported that the bank has chosen to stay there rather than follow other occupiers like HSBC and Clifford Chance in moving to the City. 

Blazeby declined to comment on the process, adding, “You’ll have to wait for the official release on that.” But he did outline one factor the company takes into account when weighing whether to move. 

“Canary Wharf, as a location for big banks, has a very high level of energy resilience,” he said. “We’re a belt-and-braces organisation. We will keep trading when other can’t. That’s what we do.”

He also weighed in on the investments made by one of the company’s landlords, Canary Wharf Group, in making an area once solely the preserve of big finance occupiers a more pleasant place to live and work.

“They had the foresight to think ahead and have a vision for what was going to be there for commercial occupiers,” Blazeby said. “It's not a new decision. They made a decision six-plus years ago.”