A Tale of Two Cities: London's Office Market Is Not Easy To Read Right Now

London’s office market is scoring record lettings performances. Or it is suffering from almost unprecedented volumes of empty floorspace. Which is it?

Data from three sources tells conflicting stories about the capital's changing office scene. It shows London is either one of the most resilient office markets in the world and bouncing back fast despite the challenge of continued working from home; or it is on the brink of a dangerous demand imbalance. Or perhaps both?

The latest numbers from CBRE, which pointed to a thriving market, come just days after apparently conflicting data that showed vacancy has skyrocketed.

CBRE figures showed that central London take-up during the 12 months to the end of Q2 2022 rebounded back to pre-pandemic levels. This was the highest level of expansionary demand for any period since CBRE’s data has been collected. The firm added that more relocators increased their footprint than decreased it.

The raw numbers showed central London office take-up reached 12.7M SF for the 12 months to the end of Q2 2022, which is 5% above the 10-year average. A total of 43 deals, adding up to 2.3M SF, saw occupiers take at least as much floorspace as they had before, showing that “expansion is still a priority for occupiers despite long-term changes in working practices,” CBRE said.

The West End recovered most swiftly, with the banking and finance sector the fastest-growing occupier group, with deals totalling 1.4M SF, the highest level for any 12-month period ever recorded by CBRE.

This is more or less exactly the opposite message of figures released last week suggesting office availability in central London has reached 31M SF, the highest since 2007 and the dawning of the Great Financial Crisis. The figure is up 20M SF since the end of 2019, Bloomberg reported, citing data from CoStar.

Data from BNP Paribas Real Estate pointed in the same direction. On a net basis, central London vacancy stands at 8.9%, up on the long-term average (6.4%) and 0.3 percentage points above the 8.6% recorded at this time last year.

CBRE said its take on the figures was the more revealing. “This surge in demand shows us the true depth of the central London office market. Despite an increase in hybrid working, demand for office space remains robust,” Head of UK Office Research Simon Brown said.

“Although many occupiers are using this opportunity to rationalise their estates, over the last year more deals have involved growth than contraction. The received wisdom is that hybrid working will significantly impact office demand. This data clearly challenges that narrative.”