Central London’s office occupiers are starting to expand by taking increasing volumes of space across the capital as better economic growth and positive sentiment in the service sector filters through to the property market – according to new research from global real estate adviser Cushman & Wakefield.
Those companies which committed to new space in 2014 increased their floorspace by a notable 42%, with the media & tech sector seeing the greatest expansion rates.
Published today, Cushman & Wakefield’s Movers & Shakers report provides an in-depth analysis of central London relocation trends and looks at the factors driving property decisions across different business sectors.
A key highlight from the report is the fact companies already based in central London relocated from a total of 5.8 million sq ft and committed to 8.2 million sq ft last year. This equates to positive net absorption of 2.4 million sq ft or a 42% growth in occupied floorspace, compared with 33% in 2013.
Media & tech occupiers, followed by the banking & financial sector, accounted for 37% and 27% of total expansion in floorspace across central London respectively. Meanwhile, the insurance sector recorded no expansion in space throughout 2014, as it sought to upgrade relatively obsolete offices to more efficient new space.
Cushman & Wakefield analysed 327 office leasing transactions in excess of 10,000 sq ft that occurred during 2014 for the report. These transactions accounted for more than 80% of total leasing volumes and represent the major trends of the leasing market throughout the year. Of these, 218 deals were for properties located in the City & Docklands, while the remaining 109 were in the West End.
Against a background of an improving economy and increasing employment, occupational sentiment was more positive in 2014, says the report – which translated into a more active central London leasing market. Central London leasing volumes returned to levels last recorded at the peak in 2007, while the level of vacant space continued to contract.
Cushman & Wakefield’s head of London occupier representation, Ben Cullen, said: “Rising rents across large parts of London and an acute shortage of quality office space last year resulted in occupiers becoming increasingly flexible in where they would consider being based. Combined with the growing appeal of London to young and footloose creative companies, this influenced location patterns with a particular focus on emerging fringe submarkets.”
London is undergoing major structural changes, with factors such as changing demographics, large scale regeneration and rising residential prices continuing to impact on how and where office occupiers locate, the publication states.
The dearth of quality space across central London drove further migrations to cost-efficient areas and the number of relocations increased year-on-year, with migration from west to east picking up pace.
Cullen added: “Vacancy rates are anticipated to be squeezed further in 2015, while prime rents will continue to trend upwards. This combination will see further uplifts in the number of occupiers expanding their search area to satisfy real estate requirements.
“Looking forward, while the City Core will remain the prime focus of activity, areas to the east are expected to see an increasing proportion of in-movers, albeit some submarkets such as Clerkenwell & Shoreditch and Southbank are seeing rents moving towards parity with the City Core alongside a dearth of immediately available stock.
“As these locations become more expensive, new submarkets to the west, such as Hammersmith and White City, and further east, such as Stratford and beyond, may come to the fore over the next few years. In the short term, Canary Wharf & Docklands is expected to be one of the main beneficiaries of occupier migration.”
Further highlights from the report include:
- Central London is being redrawn as occupiers increasingly embrace London’s new geography. Emerging areas of the City continued to benefit from footloose occupiers enhanced by their appeal to the younger demographic;
- The City Core had the greatest positive balance of out-movers and in-movers. On the contrary, Soho & Covent Garden demonstrated the highest net outflow;
- The professional services sector, followed by public & government occupiers, were the most willing to relocate;
- The insurance and legal sectors proved great loyalty, clustering around EC3 and the wider City Core.