The hangover from hybrid working and rising business rates has turned the commercial property sector on its head over the last 12 months, especially in the City.
Speaking to City A.M, Jonathan Gardiner, head of the central London office agency, said in the office market ‘best in class’ space will help drive recovery next year, but businesses may be looking for less square footage.
He explained:”It’s obviously been a challenging year across both the City and the West End.”
“Average deal lengths for [space] going under offer are now over six months..they used to be about three months.”
Savills said occupiers in central London’s financial sector have recorded a 63 per cent average occupancy rate, due to the sector largely favouring a four-days-a-week in the office model.
This is close to the pre-pandemic rate of circa 70 per cent.
Gardiner said that hybrid working hasn’t materially changed the requirements for companies when looking for new office space – however, thinks longer-term demand will move down about 10 to 15 per cent.
Rebecca Webb, director of EMEA cross-border tenant advisory at Savills, added: “Demand continues to intensify for well-connected, good-quality office space in mixed-use locations, and amid construction delays and a shortage of prime stock, occupiers will have to compete for the best space, supporting prime rental growth.”
Marcus Phayre-Mudge, fund manager at TR Property Investment Trust said the 2024 recovery would be supported by the fact that, unlike previous downturns, there are many other sub-sectors – particularly logistics and specific parts of the retail market – where demand remains very strong.
“This means that the listed space’s response to the most recent round of central bank news may well prove to be a harbinger of much better times ahead,” he said.
He added: “Historical data shows that as discounts widen, average future returns for listed real estate tend to rise. An even more crucial consideration for 2024 is that when interest rates peak, property equities recover much more sharply than the wider stock market. “
