Central London offices: Act early to depressurise your search and land the perfect deal

With quality central London office stock in short supply, those looking to secure space are facing a stark choice: act earlier and consider more flexible options, or run the risk of having to make pressured decisions and potentially missing out on the best options.

Latest research shows core vacancy rates sitting at 8% and importantly prime accommodation only accounts for 1.5% in Central London. The reasons for this critical lack of space are fourfold:

-???????The flight to quality office space has meant that in recent years London has evolved into a pre-let market for larger occupiers, with many of the sizeable, prime floorplates now taken out of the market years in advance.

-???????The Covid pandemic and rising inflation leading to higher construction costs have together created a chronic lag in new developments coming out of the ground and refurbishments being completed. This is now being felt across the market with less space coming available.

-???????London itself is a constrained market with a finite number of potential development and refurbishment options at the best of times, and now exacerbating this, demand for space is rising. One key reason for this is that post-pandemic many businesses are looking to return to the office, and in particular to central London offices. Seeking ways to incentivise staff to return to offices, we’re increasingly seeing larger occupiers that have previously occupied fringe-of-London locations looking to move inwards to draw staff back to work.

-???????Demand from bigger, corporate occupiers for properties that meet strict ESG criteria, means they have fewer options in the market as landlords and developers strive to deliver on these new requirements against the lag in developments and refurbishments highlighted above.

This combination of supply issues primarily affects prime accommodation, however, secondary stock is also limited which makes the situation worse.

And with increased demand, comes an inevitable rise in rents for space that is available. Headline rents that were unheard of pre-pandemic are now becoming commonplace.

Hanover Green’s office agency principal, Nick Raven, advises that “with the shortage of stock, tenants need to start considering their options earlier. They either need to be engaging with their landlords if they want to stay put and keep that door open, or start looking for a new property earlier than they would normally as the process is taking longer.”

For large-scale tenants scouting for prelets, he advises starting the process 2-3 years in advance – even longer for those with very specific requirements. He cites the example of asset manager Blackstone, which last month agreed a deal to take 226,000 sq ft in a newly developed Lansdowne House on Berkeley Square, W1, with completion of that block slated for 2028.

For smaller occupiers looking for sub 5,000 sq ft, whilst this was previously doable in 6-9 months, the search process is now often taking longer, meaning many should realistically allow a year or more. Hanover Green has a number of clients actively seeking accommodation that are unable to find the right space and are having to either wait or make compromises due to the lack of available stock.

“They have to be a bit more nimble and flexible in their approach than they would have been previously as it’s a very tight market,” Raven explains. “There are occupiers at the moment that are struggling to find what they want and so are having to be patient. That’s becoming quite commonplace even on smaller-scale accommodation. Interestingly though, occupiers have learnt that working at home is possible and it is not unusual for our clients to be prepared to go without an office while they wait for the right one.”

Even once a property has been identified, deals to secure it are now also taking longer, extending from around 5-6 weeks, to closer to 3 months to complete.

Colette Williamson, Hanover Green’s office lease advisory principal, adds there’s no deluge of supply waiting in the wings to ease the situation, so when approaching the market, tenants need to be open-minded about the deals they would consider, whether relocating or regearing in an existing property.

Particularly on smaller-scale spaces in the West End, she says “landlords themselves are becoming more creative and offering more-flexible deals.”

“We’re seeing more flexible, fitted accommodation,” she says. “This is attracting tenants that might have gone for serviced offices, but now can choose a landlord’s fitted option with lease flexibility – like 5 years with a break at 3 – which gives them their own front door and would be a cheaper option than serviced offices overall. But this supply – when it becomes available – is also heavily sought after and goes quickly.”

Within this fast-paced market, starting the process early, scoping out and knowing your options, whether that be a relocation or regear, and accepting that you might need to think outside the box, are all key to avoiding pressured decisions.

To support occupiers considering a relocation, Hanover Green offers a space calculator and tenant’s handbook outlining step-by-step the process involved, alongside testimonials of those who have already been there and completed a deal.

Colette explains: “Nick and I work side by side advising tenants on a relocation or whether they want to renew their existing lease. Nick goes out and looks for new space and I engage with the existing landlord to see what the terms would be on a renewal, and we then compare side-by-side in a twin-track process. We believe it’s useful to separate those lines of negotiation, as they require differing skillsets, giving greater credibility to the advice for either option.”

To find out how Hanover Green can help secure the best property deal for your business, get in touch with Nick Raven and Colette Williamson today.