The 3 Numbers That Explain The London Office Market's Slow Rebound
Occupier advisory firm DeVono has released its latest quarterly office market update. The figures complete the picture for 2021, and point to the trends to watch in 2022.
It paints a picture of a market that isn't bouncing back fast.
These are the three numbers you need to know.
1. Leases Are For Small Suites, And Shorter Terms
The trend toward shorter lease lengths and smaller deals has been underway for some time. The pandemic and its aftermath has now hardened the trend into a new normal.
DeVono said lease lengths shortened in 2021, settling at an average of 5.5 years, down 8% on pre-pandemic terms.
At the same time the average size of an office deal in 2021 was 6,667 SF. This is marginally up by 5% on the 2020 average, but 13% down on 2019.
The number to remember: 5.5 years
2. The Flex Office Market Is Stuck
There was no movement in the price of grade-A serviced office desk rates in London in the last quarter of 2021. The average London price remained stuck at £739 per desk, per month.
Serviced office providers were offering super flexible deals during 2020 and 2021 in a bid to lure in new tenants: This kept a lid on pricing.
That period could be over, but don’t expect prices to rocket. “As the best-in-class centres start to secure more businesses we expect the upper end of pricing to edge northwards, especially in the West End submarkets that are more susceptible to occupancy fluctuations,” DeVono said.
But the firm is not so bubbly about the pricing prospects for grade-B serviced office space.
Operators are cautiously looking for new space, signing up for 460K SF in 2021 — a hefty drop on the 2.1M SF recorded in 2019 but sharply up on grim 2020.
DeVono advised that the big change in gear will wait until 2023.
Number to remember: 460K SF new flex operator floorspace in 2021
3. Availability Is Rocketing, But Take-Up Is Not
Grade-A availability in Q4 2021 was up 31% over the year, yet deal-making is not keeping pace.
Availability levels fell in Q4 across key fringe markets, but only by a whisker. Midtown was down 1%, Southbank 3%, and E1 performed best, down 10%.
However, over the year, availability in Midtown, Southbank and the eastern fringe is on average 23% higher than at the end of 2020, indicating that the market has not warmed up.
The final quarter showed “the wind has been knocked out of the sails of the fast-paced growth seen earlier in the year,” DeVono said, adding optimistically, “our latest research suggests that we may have reached tipping point and 2022 could see a wider reduction in availability.”
Docklands availability remained at 2.7M SF, the highest volume since 1996, with the prospect of yet more space returning to the market as corporates rethink.
Availability in the City and West End are now at levels last seen in 2010-11, the City at 8.5M SF and the West End at 5.1M SF. Reducing this will be a ”slow and long process,” DeVono conceded.
Number to remember: 8.5M SF available in the City, the highest since 2010-11
