London office market continues shift in favour of tenants with up to 2.5 years rent-free now available on some space
Carter Jonas has published its fourth quarter 2020 report on the London office market: The London Office Market Q4 2020: A guide to rents, rent free periods & market trends.
According to the report, landlord's advertised rents for prime located, mid-rise, new and refitted Grade A office space as at Q4 2020 are: City - GBP70.00 per sq ft per annum; West End (Mayfair) - GBP110.00 per sq ft per annum; and Canary Wharf - GBP52.50 per sq ft per annum.
Rent free periods have continued to expand by one to two months, during the last quarter of 2020 with up to two years now available in some locations.
Vacancy rates across the London office market continues to rise - boosted by an increase in tenant-controlled stock, as occupiers offload surplus space by sub-letting, while demand for office space across London is principally confined to those occupiers seeking to downsize and/or relocate to better quality, more "Covid-safe", accommodation.
Footloose occupiers looking to relocate are asking for greater lease flexibility - shorter leases and more frequent break options - reflecting the uncertain post Brexit, Covid-19 economic environment.
Michael Pain, Head of the Tenant Representation Team, Carter Jonas, says: "Weak demand and increasing vacancy from a rising volume of tenant-controlled space are factors that are conspiring to depress rents. While landlord's advertised rents for new Grade A space have hardly moved since the onset of the Covid-19 pandemic, the discounts that can be negotiated have widened from 1.5-3.5 per cent during Q1 2020 to 5-10 per cent during Q4 2020.
"The inevitable correction in landlord's advertised rents is likely to manifest itself during the second quarter of the year, pulled down by competition from ready fitted out, tenant-controlled, Grade A space that is available on more flexible lease terms. We anticipate that many areas of the London office market will see landlord's advertised rents for new and refitted Grade A space decline by up to 10 per cent by the end of the year, and by up to 15% in the City of London and Docklands where vacancy levels are higher."
Dan Francis, Head of Research at Carter Jonas, adds: "The forecast death of the office has been overdone. The fact remains that an overwhelming number of occupiers understand the importance of the office as a focal point to foster productivity, collaborative working, innovation and, importantly, employee wellbeing.
"Interestingly, the flight to quality space has been continuing during the pandemic. However, occupier's motives are less about recruitment and more about environmental considerations and reassuring existing staff that it is safe to return to a new, COVID-safe, workplace with an air conditioning system that can be relied upon to safeguard their health."
Justin James, Head of Carter Jonas' Central London Investment Team, adds: "The flight to quality office space by occupiers is also being mirrored in the investment market. Global investors are shunning low grade office stock, which represents a higher investment risk associated with lower rates of rental growth and longer, and more frequent, letting voids. The need for investors to meet their stated corporate environmental, social and governance (ESG) objectives is another factor driving the investment market towards quality buildings."