BNP Paribas Real Estate central London office leasing data analysis has revealed that West End and City markets remained resilient in the final quarter of 20022, despite workforce cuts and energy performance certificate (EPC) legislative changes sparking a focus on the rationalisation of space.
Q4 2022 data shows that prime rents across the West End climbed 19% from £117.50 (€132.20) to £140 per ft2 year-on-year, and have maintained at £72.50 per ft2 for the City.
Meanwhile, occupier types are in a state of flux. banking & finance occupiers increased from 16% to 36% y-o-y and professional services from 10% to 12%. The biggest decline was media & tech which tumbled from 41% to 13%.
City was much more even tempered, and saw professional services increase from 43% to 45% and banking & finance and public sector slip from 15% to 12% and 5% to 2% respectively.
Simon Knights, head of West End agency at BNP Paribas Real Estate commented: 'As the economic landscape continues to provide a bumpy terrain, some businesses will reduce headcount.
'When the new EPC legislation comes into play in April, we will start to see less appropriate stock shed back onto the market.
'All setbacks need a solution and the demand will continue to drive the upgrades needed for this stock to be re-let.
'With the big bucks continuing to flock in from the likes of private equity & finance for new and amenity rich spaces, the West End continues to prove why it will rarely bite back, and you only have to look back to see this.'
When examining pandemic levels where workforce overheads were last challenged, the West End maintained rents at £112.50 in Q1 2020, while is Q3 2021 they climbed to £115 per ft2, while values in the City declined from £72.50 to £70 in Q3 2020 before climbing back to £72.50 by Q3 2021.
James Strevens, head of City leasing at BNP Paribas Real Estate added: 'Occupational demand for the City has an eagle-eyed focus on quality and amenity with a desire for premium offices offering superior workplace experiences and, of course, enhanced ESG credentials.
'Professional services have swooped in as we see media & tech losing pole position, and occupiers are showing an increased interest in Cat B ‘plug-and-play’ accommodation across a broadening size range, driven by the need for flexibility, convenience and the avoidance of associated fit-out costs.
'Who will win in the end? West End or City? I think both are formidable forces.'
Across the West End, Q4 2022 saw a 43% increase in take-up at 1.4 million ft2 (130,000 m2), bringing 2022 totals to 4.3 million ft2 and representing a 58% increase year-on-year, significantly above the 10-year average.
Supply decreased by a further 9% to 2.5 million ft2, down from 2.7 million ft2 in Q3. Vacancy is at 4.0% (4.4% Q3) and of that Grade A 0.8%. (1.2% Q3). 1.6 million sq ft of office space completed in 2022, of which 45% was pre-let.
City take-up reached 1.2 million ft2 across Q4, bringing 2022 totals to 5.5 million ft2 which is up 42% when compared to 2021 and in line with the 10-year average.
Supply in the City decreased by 5% to 9.0 million ft2 equating to an overall vacancy rate of 10.3%. The continued constrained supply of Grade A space led to a reduced Grade A vacancy of 4.3%.
Notable deals in Q4 2022 include Blackstone’s and GSK’s pre-let of 225,000 ft2 and 161,000 ft2 at Lansdowne House and Earnshaw respectively (West End), and Clifford Chance’s pre-letting of 321,000 ft2 at 2 Aldermanbury Square on a 20-year term at £77.00 per ft2 (City).
