Vacancy rates across London’s most sought-after submarkets stand at near record lows in its newest prime workspaces, according to global property consultancy Knight Frank.
Availability in newly constructed office buildings offering best-in-class tenant experience and sustainability credentials have fallen to 0.3% in the West End Core, comprising Mayfair and St James’s, and 0.5% in the City of London.
This equates to just 379,394 ft2 (35,240 m2) of office space in two of London’s largest submarkets; less than eight months of average take-up for new office space. In comparison, vacancy rates across all London office stock currently stands at 9%, with a majority of this being space in average to lower quality buildings.
Leasing activity
The year to date has witnessed 7.3 million ft2 of leasing activity across central London. Pre-let volumes, with over 1.2 million ft2 of workspace taken this year in buildings still under construction, reflect both growing business confidence and companies having to secure new space years in advance of occupation.
Furthermore, near-term market momentum is underpinned with almost 2 million ft2 of deals under offer in the City, and 1 million ft2 in the West End.
Demand for new office space in the context of scarce availability has seen prime rents in the City rise 16% over the past 12 months to £90 per ft2. Similarly, prime West End rents are up 7% to £150 per ft2.
Recent deals
The most recent quarter saw global financial institution Legal & General agreeing to pre-let 190,000 ft2 at Woolgate in the City of London ahead of its move in 2027.
Accountancy firm BDO signed a long-term lease for a new UK headquarters at The M Building on Oxford Street. The 220,000 ft2 pre-let, with construction completing next year, is the West End’s largest letting this year. Additionally, cloud technology firm Monday.com also agreed to occupy 80,000 at 1 Rathbone Square in Fitzrovia, to support its UK growth strategy.
This follows a series of largescale pre-lets agreed this year, including hedge fund Citadel’s deal to occupy 250,000 ft2 at 2 Finsbury Avenue in the City and investment bank Evercore committing to take 130,000 ft2 at 105 Victoria Street. The final quarter of the year has seen global credit rating agency Moody’s agreeing to a new 110,000 ft2 headquarters at 10 Gresham Street in the City.
Wider volatility
London’s robust occupier market reflects the city’s business resilience despite wider macroeconomic volatility over the past few years, with Knight Frank tracking 11.5 million of current active office requirements; up 10% year-on-year.
The city’s corporate roster currently includes 4,000 high-growth professional services companies, a 10% increase from five years ago. This is in addition to 6,960 high-growth technology firms, 23% more than five years ago.
Additionally, the UK capital’s two leading research-led tertiary education institutions, Imperial College London and University College London, have helped create over 3,500 jobs through its spinouts over the past five years.
With 18 million ft2 of lease expiries between now and 2028, the dynamics for future leasing performance remains robust, with corporate occupiers largely opting to upgrade workplace portfolios to support talent strategies and business growth.
Overall, the London office market is expected to experience a 13 million ft2 shortage of new office stock during this period, setting the committed development pipeline against long term average levels of prime take up, which will continue supporting prime rental values.
Office first
Philip Hobley, head of London offices at Knight Frank, commented: ‘The growing reversion to office-first work policies amongst companies of all sizes has seen London’s newest best-in-class workspaces being acquired by those seeking to upgrade their corporate headquarters.
‘The lack of available prime space means that companies are securing future office requirements further ahead of time, given competition in locations where vacancy is at historically low levels. A sizeable proportion of the lease expires in coming years is for space within older office buildings lacking what modern occupiers want, which means that the market will further bifurcate.’
Shabab Qadar, London research partner at Knight Frank, added: ‘Lease expiries will be the primary driver of demand going forward, which is evidenced by current active office requirements, but the development pipeline remains constrained because of planning and financing challenges.
‘The contrasting fortunes within the London office market continue to be laid bare, with the best space commanding premium rental values but secondary stock requiring significant capital expenditure in order to be future proofed.’
Total annual commercial real estate investment returns have turned positive (3%) this year, and are at their highest level since October 2022, according to the MSCI UK Property Index. The index’s turnaround reflects the sector’s improving operational climate, underpinned by expectations of a lower rate environment and structural drivers.
