Jones Lang LaSalle considers the future for the City of London’s occupier mix
“London is one of the most mature, dynamic office markets in the world, and as such it is in a constant state of flux.” So says Jones Lang LaSalle in a look back at the changing nature of the market for offices in Central London.
The stock of offices in London has risen by 41% since 1984, Jones Lang LaSalle points out, with most of this growth taking place in the City offices and Docklands offices markets, which have added 50.4m sq ft to stock. The West End offices market has acquired an additional 12m sq ft over the same period. “Of course, Docklands and Canary Wharf have grown from almost nothing, but the City has expanded by 39% and the West End by 16%,” the firm adds.
Over the same period, office employment in London has doubled – so expansion has been necessary. The current vacancy rate of 6.1% demonstrates a “healthy balance” between supply and demand, JLL says, but the rate of expansion in the City compared with that of the West End goes some way to explain the differential in rental growth between the two markets. While rents for City office space have remained broadly stable in real terms since the mid 1980s, the heart of the West End has experienced “significant” growth.
This raises an important question about business location within London, JLL says. In the past there have been instances of occupier groups moving over quite large distances: investment banks to Canary Wharf, and advertising agencies to the West End, for example.
“Today the City looks like an attractive proposition for footloose occupiers,” JLL says, noting the 2.3m sq ft of current, footloose requirements in Central London. The firm believes that the City will begin to attract a wider mix of occupier types. It points out that much of the City’s stock is Grade A, and much has been renewed since the 1980s. Rents are relatively low, the streetscape is attractive, and public transport is excellent. “It looks like very good value, especially as floorspace densities increase,” JLL says. The trend towards a wider occupier mix has already started on the City fringes and will intensify in coming years, but whether occupiers will be attracted to the City core will depend on whether its amenities and the overall “lifestyle offer” continue to improve in the longer term.
“We do not expect the City’s gain to be at the expense of the West End. Indeed, supply is so tightly constrained that the West End has its own built-in protection mechanism,” the firm points out. But it does feel that the City’s traditional association with the banking and financial sector is a barrier for some occupiers who see themselves as forming part of a different type of business culture.
“Image and lifestyle is increasingly important to many companies when they choose their premises, particularly as it is key to attracting and retaining young, talented, globally footloose workers,” JLL adds. While the fringe locations offer the shops, bars and restaurants that fit with this requirement, the City core remains a predominantly corporate environment – “albeit one that will continue to change”. JLL thinks it is possible that in time some more atypical occupiers will move into the Square Mile itself – perhaps when they become more established.