Central London office take up was up in 2022 compared to the previous year, according to global property consultancy Knight Frank, with the legal sector being a standout in terms of new transactions.
The agent said letting transactions totalled 10.9 mln ft2 up 27% year-on-year, with take up for new or comprehensively refurbished and upgraded offices reaching 6.5 mln ft2 or 60% of total take up.
However, the 10.9 mln ft2 headline figure remains below the annual long-term average of 12.3 mln ft2 as new office completions continue to face delays.
The year saw all-time high take up amongst the legal sector with 1.4 mln ft2 acquired, surpassing the 1.1 mln ft2 in 2021. This was driven by large corporate headquarter deals, including Clifford Chance’s 321,100 ft2 pre-let at Great Portland Estate’s 2 Aldermanbury Square development and Kirkland & Ellis committing to a new 215,000 ft2 office at 40 Leadenhall.
But the year’s stand out deal was in the financial services sector, which accounted for the bulk of take-up.
US financial services giant Capital Group agreed to lease 225,000 ft2 over nine floors at the newly developed Paddington Square as its new London headquarters. In the City, UK asset manager Aviva investors also confirmed it will move to a new 80,000 ft2 workspace spread across four floors at EightyFen, a new development named after its location at 80 Fenchurch Street in the City of London.
Philip Hobley, head of London offices at Knight Frank, said companies were having to navigate two new challenges; evolving a new strategy of flexible working patterns that support the wellbeing and productivity of their workforce and client service; whilst looking to engage and address ESG targets.
‘This has pivoted the focus to new, higher quality buildings capable of delivering more dynamic workspaces ahead of leases expiring, in response to a constrained development pipeline,’ said Hobley.
‘We estimate a 10 mln ft2 shortfall between now and 2026, based on a visible pipeline of around 15.9 mln ft2, of which 3.5 mln ft2 has been pre-let, set against long term levels of take up of new and refurbished Grade A space standing at around 5.6 mln ft2 per annum.’
Shabab Qadar, London research partner, added: ‘Despite a series of economic shockwaves, the London office market continued to demonstrate robust letting volumes in 2022, fuelled by the drive to occupy better quality buildings that can deliver enhanced workplace experiences.’
Despite macroeconomic headwinds, the fourth quarter of the year has seen 2.4 mln ft2 of new office leases agreed, with a further 2.8 mln ft2 of deals currently under offer, pointing to a continuation of transaction activity across London in 2023.
This is in addition to 8.5 mln ft2 of active office requirements in the market, resulting from lease expiries, expansion plans and demand for reconfigured, better-quality buildings.
Office investment transactions have totalled £13.2 bn (€14.5 bn), 7% higher than 2021. Activity was led by investors from APAC (36%), North America (19%), the UK (17%) and Europe (17%) targeting income security from long leases in buildings with blue-chip tenants to hedge against higher levels of future inflation.
The largest deal of the year was CK Asset Holding’s £1.2 bn acquisition of 5 Broadgate near Liverpool Street, which is let to UBS. Others included Landsec’s £809 mln acquisition of 21 Moorfields. The year also saw Singapore's Ho Bee Land buy The Scalpel for £718 mln and Google acquire its London headquarters in Central Saint Giles for £775 mln.