2023 is already in full swing, and the economy continues to be uncertain with rising interest rates. But businesses, freelancers, and entrepreneurs will continue expanding and growing to new horizons. Renting an office space in London is one of the first things companies consider as they continue their growth journey.
The current year is undoubtedly coming with new challenges for the office space market in London. But despite the challenges, there are still opportunities for growth and reasons for optimism. Below are some of the most recent trends in the office space market in 2023.
Get Ready for a Shorter Lease Duration
When looking for an office space to rent in London, one has to sign a lease for a particular duration. While in 2019, in Central London, the average lease term was around 5.4 years, it is already down to 4.9 years by the end of 2022. Though it is common for lease duration to be shorter and not something new, it highlights the need for businesses of enhanced flexibility.
The overall average for the lease term of rent office space in London city has come down to 4.7 years from 5. With organisations going for flexible work arrangements, the trend will undoubtedly continue as businesses look to cut costs.
Higher Rents Despite Downturn
Today office space in the London market is divided into three categories, super-prime, prime, and the others. While the rents for the prime category units are expected to grow by at least 3.7% depending on the economy, the super-prime market’s rental can increase even further.
Offices in the core areas are sparse, and there are few high-quality and well-designed office spaces for rent today. However, despite a higher overall vacancy rate, the demand for office spaces in prime locations is still on the rise, and thus, there is a chance of a significant increase in rents.
Increase in the Sublease Space
The current market is similar to the situation during the onset of the pandemic, as the focus is again on the tenant space. Many places across London are currently getting marketed as spaces released by tenants. In addition, organisations are moving towards a hybrid model; thus, physical space requirements are diminishing. Moreover, we are in macroeconomic conditions, and the growth requirement, specifically in the technology sector, will either be postponed or cancelled.
Most businesses with office space in London are trying to use less space than they would have ideally used before the pandemic. While it might be early to predict if this shift in the space volume is permanent or temporary, the impact of the new working models will continue as businesses add and reform policies.
Higher Demand for Equipped Spaces
One of the most rapidly growing trends across the London office space market is the requirement for fitted options in the office space market. Fitted space comes with many benefits, including:
- Easier and faster transaction
- Convenient transition to the conventional lease terms
- Easy to visualise and plan to work from the office
- Opportunity to plan the cost across the lease
As more landlords rent office space in London, they are expected to focus on providing fitted space as a complete package. It can help them reduce void periods, get higher rentals, and add a packaged service for the tenants. So it allows tenants and owners to prosper and meet their goals.
Improving Capitals Market
While the investment volume has been low in the past few quarters, the trends are slowly improving positively. Though there is a sign of caution amongst investors, the outlook of a stabilising economy is providing the necessary impetus to the capital markets. As a result, the London market seems to be highly favourable, with a correction rate better than its European and Asian counterparts.
It is evident that prime deals have been rare, but the recent deal of New Street Square provides confidence in the market, especially to overseas investors. It provides a benchmark for investors who were cautious about their deals. The prime location in London that now has new transport facilities or has gone through regeneration is seeing almost perfect occupier activity. All of this is positively impacting investor sentiment.
If the recent trends are anything to go by, hybrid is the new normal. And as highlighted above, tenants will continue to sublease the spaces as they try to optimise the utilisation of spaces. But the positive outlook of the macro and micro economic will surely boost the market in 2023. So while most businesses have paused or cancelled their growth plans, things are expected to improve later in the year.
At Go Bermondsey, the goal is to be on par with the ongoing market trends and plan to provide the best amenities and services to businesses looking for office spaces. Contact us now to find more details.