This is undoubtedly a strong sign of London’s enduring appeal, but it is important to remember that 26% of this take-up was comprised of a single deal at Royal Mint Court, with serviced offices accounting for a further 16%. Therefore, in order to understand how the market is likely to perform looking ahead, we need to look beyond these headline stats and instead consider the tenant priorities that are shaping tenant demand.
First, it is impossible to discuss the influences on tenant demand without considering transport connectivity. As the importance of a sustainable work-life balance and the costs associated with living in central London increase, it is becoming vital for occupiers to provide their employees with office space that can be accessed quickly and efficiently. The effect of this can be seen in the City’s submarkets surrounding Crossrail stations, primarily Farringdon and Liverpool Street. Signficant deals include The Trade Desk taking 55,000 sq ft Ashby Capital’s One Bartholomew Close, whilst on the investment side, Anglo American took a sale and leaseback of their old HQ on Charterhouse Street. The building was bought by M&G signifying the return of UK institutional interest in London sites that retain opportunities.
Secondly we cannot underestimate the importance of being near to both clients and competitors, and this can be seen in the subsequent clustering that already exists and can be seen to be growing in central London. The main example of this is the EC3 submarket that we expect to remain a hub for Insurance companies. A newer example is King’s Cross, where Google is already in place and Facebook has recently signed for more than 600,000 sq ft, turning the area into what seems, like a London ‘Silicon Valley’ for media occupiers.
Thirdly, we need to remember that while transport and proximity to competitors and clients are important, we are seeing occupiers being more aware of their requirements of the building itself. Traditional landlords have felt the pressure of the serviced office market and are increasingly keen to provide space that reflects an occupier’s professional ethos and environment. This is further exacerbated by pressures on timing, as where previously it took up to nine months to find an office, WeWork has allowed occupiers to not only move in in a matter of weeks, but into space that already meets a tenant’s service requirements.
In response, we are now seeing the advent of a Cat A Plus offering where landlords offer newly fitted space, similar to WeWork, on flexible leases, although with a reduced rent-free period to account for the included facilities. Other buildings include an integrated space as a service provision in the design of the building; a good example is 22 Bishopsgate, which will provide tenants with a serviced offering, including such features as a climbing wall, a communal café for tenants, and a 24 hour restaurant. Of course this will only suit some occupiers with buildings such as 100 Bishopsgate still offering more traditional space and leasing successfully.
Looking ahead, we expect the serviced offices market to continue growing. Where first operators offered space only to start-up style tenants, the market is evolving to provide space to what WeWork call ‘Enterprise’ tenants, which are more established corporates that could require additional overflow or project space for a multitude of reasons. Indeed, serviced office brands are increasingly locating in the centre of core markets to offer the serviced space to the established tenants already located in those markets. Landlords have taken notice of the trend and are increasingly launching their own brands, including British Land’s Storey, The Carlyle Group’s Uncommon and Blackstone’s share in The Office Group.
For GVA’s full review of the central London office market looks at activity in central London during the first quarter of the year please click here.