The amount of ‘grey space’ – tenant-controlled office space that occupiers look to sub-let – available in central London spiked over 2020 and early 2021 as uncertainty over the pandemic, and perhaps question marks over the very future of the office, led to an above-average amount of space being marketed. As 2021 has progressed, however, this trend has slowed and there are some signs that it could be reversing.

While tenant-controlled space remained up on the long-term average by 45 per cent between March and May 2021, only 238,135 sq ft was added to the market, compared with 601,712 sq ft being added between December 2020 and February 2021 – roughly a 60 per cent fall.

Looking more closely at 2021, by the end of May we had seen the largest monthly decrease to tenant-controlled space since March 2020, with supply standing at 5.88 million sq ft, down from 6.29 million sq ft in April – a 7 per cent fall – which itself was down from the 6.4 million sq ft February peak.

Part of this drop can be attributed to 38,000 sq ft of tenant space being successfully let to new occupiers in May, but the vast majority of the reduction – approximately 372,900 sq ft – was due to tenants withdrawing space from the market.

Examples of occupiers that had a rethink include New Look, which withdrew 60,989 sq ft at 45 Mortimer Street, W1, and Westminster Council, which took 56,526 sq ft at 64 Victoria Street, SW1, off the market. Since then tenant-controlled space across central London has remained broadly stable standing at 5.86m sq ft at the end of July, down 8 per cent on the February peak.

The motivations behind taking space back vary: some occupiers perhaps moved slightly too quickly when the pandemic hit, thinking that employees could permanently work from elsewhere and that there was an opportunity to save on rent. They’ve now recognised, as time has worn on, that actually the majority of employees will return to the office in some form, and therefore they require the same number of desks as before.

Others may have calculated that although they may have fewer employees in the office, and therefore require fewer desks, they want to retain the same overall quantum of space but use it differently: adding more meeting rooms fitted with technology to allow video calls, for instance, and creating extra break out and social areas, or using it to space out desks to make employees feel more comfortable while social distancing is still a reality for many.

The most positive reason for withdrawing space, however, is a return of business confidence. Better than expected growth figures have resurrected some occupiers’ expansion plans: GDP was up for the fifth consecutive month in June, albeit by only 1 per cent, but the Bank of England is forecasting annual growth of nearly 7.3 per cent overall. Some occupiers have determined that they are likely to grow and, hybrid working models or not, they need to keep space to accommodate expansion. 

While a lot of grey space remains on the market, the signs in London are positive. We are unfortunately not quite at the end of the Covid-related uncertainty, but the mass placing of space on the market has slowed and may recede as many occupiers reflect and conclude that the office remains central to their business needs.

Further information

Contact Philip Pearce

Market in Minutes: City Office Market Watch