Smaller Leasing Deals, But More Of Them, Are The New Normal In London
More of less: This is the lesson from the latest deep dive into London’s office occupancy market.
Analysis of 2022 by DeVono suggested the central London market is seeing more deals, but the average size is smaller. The result is slow progress eating into the capital’s supply of vacant floorspace.
The consultancy calculated that average deal size remains 9% below the five-year average at just under 7K SF. Although the total floorspace let returned to a roughly normal 12.9M SF, the number of individual market participants rose sharply by 23% compared to 2021. The conclusion: There are more occupiers taking less space each.
The year’s deal-making represented a modest bite into the stock of vacancy floorspace, which dropped just 4% to 22.5M SF, an improvement but still 62% higher than in the first quarter of 2020, the last pre-pandemic comparison.
The consultancy’s analysis supports a growing consensus that post-pandemic requirements are between one-fifth and one-third down on pre-pandemic levels.
“Clifford Chance, Hogan Lovells and Grant Thornton, to name a few, have all committed to less space than they currently occupy," the report said. "DeVono’s workplace consultancy team have worked with several companies in 2022 to ascertain their required office size when factoring in hybrid working patterns and office design and, as a result, generally space efficiencies could be gained ranging between 21-32% less space.”
Average lease length was also down in 2022 landing at 5.6 years, compared to six years average in 2021.
The West End office market was the star performer with vacancy down to 4.2M SF, a fall of 18% over the course of 2022. Some submarkets showed unusual resilience, while others had a tougher year. Two West End submarkets recorded double-digit quarterly decline in office availability in Q4 2022 — Paddington (-30%) and St James's (-14%). Two more saw office availability rise in Q4 2022 — Knightsbridge (12%) and Victoria (27%).
City of London availability fell 5% to 8.4M SF. Docklands availability is 75% higher than it was in the last pre-pandemic quarter (Q1 2020) despite a strong performance as 2022 ended.
With availability barely moving outside the West End, rents remained roughly static. Across central London rents were 2% below those of the pre-pandemic early days of 2020. However, prime Mayfair-St James’s rents end the year at £130 per SF up 4% on the previous quarter and are now 8% higher than at the start of the pandemic.
