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Demand for high-end London offices is starting to “trickle down” to second-hand buildings because of sky-high rents and a shortage of new properties, according to one of the capital’s biggest landlords.
British Land, which co-owns Broadgate in the City of London, said it had seen a significant uptick in demand for “good second-hand space in core locations” and a sharp fall in the amount of available space.
Since Covid-19, big office tenants have been narrowly focused on the best-quality space in new or freshly refurbished buildings, as they tried to lure employees back to in-person work.
But Simon Carter, British Land chief executive, said the market was now shifting because new space had become so expensive and there was little availability owing to a lack of construction since the pandemic.
“There is definitely the trickle-down effect,” he said. “The return to the office is much stronger than anyone anticipated. No one [has] built, so the rents are strong.”
A year ago, hedge fund and market maker Citadel pre-leased a large office space in British Land’s development at 2 Finsbury Avenue for about £100 a sq ft, far ahead of the roughly £70 a sq ft rent similar buildings had commanded just a few years earlier.
Rents for that top-quality space are now pushing £115-£120 a sq ft, with few buildings still on the market to occupy in the next several years — which is forcing businesses to look at other options.
“That demand is just going elsewhere,” said Carter.
Office vacancy levels fell slightly in London’s central City and West End districts in the first quarter, according to data provider CoStar. Brokers Cushman & Wakefield said the amount of second-hand space sitting on the market in the City had fallen by a fifth since 2023.
Most businesses want to stay in core locations close to large train stations, but Carter noted early signs of a move to office districts further away from key transport links, such as British Land’s development at Canada Water.
He said he was beginning to see a trend that “if [companies] want a new building and they are more price sensitive, they are looking at some of the emerging location: Battersea, Stratford, the new buildings at Canary Wharf or Canada Water”.
British Land on Thursday reported an improvement in the value of its properties with its £9.5bn portfolio of UK offices and retail parks increasing by 1.5 per cent in the 12 months to March, according to independent assessments. The portfolio was boosted by higher rents after several years of valuation declines driven by rising interest rates.
The company reported its rents rose 3 per cent on a like-for-like basis, with underlying profit — which strips out the impact of changes in property valuations — rising 4 per cent to £279mn.
