The Economic Future of the Central Activity Zone (CAZ) Phase 1: Office use trends and the CAZ ecosystem Report to the Greater London Authority (GLA)
8. Office-occupiers will re-assess their needs, but will not abandon the CAZ The pandemic has caused a shock to the commercial real estate sector A potential structural shift in employee behaviour has cast some doubt on the future and viability of the office. However, we consider that the office still has value to add in terms of relationship building and as a collaborative environment.
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Before the pandemic, the office market in central London was characterised by low supply, limited development, significant pre-letting and rental growth. London’s office leasing activity started robustly in 2020 on the back of a decisive general election result and perceived political and economic certainty. The Q1 2020 take-up totalled 3.2m sq ft, only marginally behind the 5-year average.
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Reassuringly for the market, availability, particularly for primary grade product, remains well below historic peaks across most London submarkets. There is a limited pipeline of new supply coming through due to postponement of developments, and completion dates being pushed back. Of the 11.6m sq ft under construction, 41% is already committed, and pre-let activity for new ‘best in class’ buildings has remained strong. Whilst there has not been a huge swathe of vacancies appearing in the CAZ, it does seem that many occupiers are taking a risk averse approach, and using the pandemic as an opportunity to defer real estate decisions on spatial requirements. It is also offering occupiers a chance to scrutinise what their office use needs are. Another consideration is that the high pre-pandemic levels of rent and sale prices suggests unmet demand, which might suggest that there will be a shift in use patterns, as opposed to a collapse altogether. January 2021
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90 80 2011
2012
2013
CAZ
2014
2015
2016
2017
2018
Inner London (excl. CAZ)
2019
2020
2021 Est.
Outer London
Indexed Floorspace Growth 2011 – 2021 (est.) (Source: Gerald Eve, 2021, research as part of this assignment)
sqft
However, leasing activity was sharply curtailed at the end of Q1 as the scale of the COVID-19 pandemic and the imposition of the first lockdown in March took effect. Leasing activity slumped to record lows during Q2, Q3 and Q4 as the majority of businesses focused on scaling back, re-evaluating their spatial needs and either postponing real estate decisions or bringing surplus space to market.
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5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015
2016
2017
Central London Take-up, sq ft
2018
2019
2020
5-yr ave.
Central London office leasing activity, 2015 – 2020 (Source: Gerald Eve, 2021, research as part of this assignment) 77
