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Savills plc

12/02/2021 | Press release | Distributed by Public on 12/02/2021 09:26

Why 2021 has been the year of the pre-let for the City of London office market

A turbulent 18 months has presented challenges for the real estate sector but also created opportunities for landlords and tenants alike. Following multiple lockdowns, it's clear that businesses are keen to see their staff back in the office, but when competing with the comforts of working from home, a shiny new office building is a plus for firms looking to attract and retain talent.

Consequently, 2021 has seen record pre-letting levels in terms of the percentage of total quantum of take-up, accounting for 39 per cent in the year to date, compared with the 10-year annual average of 22 per cent.

Starting in January with Latham & Watkins, which acquired the first 15 floors at 1 Leadenhall, EC3, this has only continued throughout the year. Other notable deals include Allen & Overy committing to approximately 255,000 sq ft at 1 Broadgate, EC2, and ABRDN and Cognizant acquiring space at DUO, 280 Bishopsgate, EC3.

Such headline deals are a positive signal to the rest of the City of London office market and provide increased confidence to other occupiers with potential requirements. The commitment of large companies to sign lengthy lease terms stimulates the market, providing an air of longevity for years to come.

The professional services sector has proven to be extremely resilient throughout the last 18 months, accounting for 43 per cent of space pre-lets this year and 26 per cent of the total take-up. Chasing professional services are the insurance & financial services sector and the business & consumer services sector, each accounting for 12 per cent of pre-lets. It's worth noting that the average amount of time these tenants occupied their previous addresses is 20 years.

Led by a variety of national commitments on carbon neutrality, an increasing number of major office-based corporates are setting out their own targets. This in turn has progressed into a rising bias towards office buildings that have strong sustainability credentials.

By pre-letting a building, a tenant can seize opportunities to alter the design of their office space, with regards to both environmental concerns as well as interiors. What's more, 73 per cent of the total space pre-let this year has been graded BREEAM 'Excellent' or higher, with occupiers intent on aligning their space to their sustainability objectives. This can also be attributed to planning policy amendments, whereby all developments are required to be BREEAM 'Excellent' or 'Outstanding'

New developments are often awash with attractive amenities and features that are high on the list of what workers want. In Savills most recent Office FiT survey, 'space for full teams to gather', 'social break out areas' and 'dedicated collaboration spaces' were top of wish lists.

Pre-letting an office provides the ability to create/design such spaces and certainly will assist with attracting talent back to the workplace, providing companies with an advantage when competing in the current 'war on talent'.

It's evident that this trend will continue for years to come even as the City seeks a path back normality. Space under offer is currently 80 per cent above the long-term average, at 2.3 million sq ft, of which 40 per cent is space in the development pipeline, emphasising the 'flight to quality' among tenants.

Further information

Contact Will Wilson

Market in Minutes: City Office Market Watch