Occupiers today are increasingly concerned about the impact that high-quality office spaces can have on productivity, employee retention, and recruitment efforts. Consequently, there has been a notable trend towards premium office spaces across all markets. This trend is particularly pronounced in London's city core, where Grade A towers are increasingly sought after by occupiers due to their superior amenities, environmental credentials, and commanding views of the city. On average these towers have 8% of their net internal area dedicated to amenity provision with the newer towers (completed after 2020) having on average 12% dedicated to amenities, highlighting the unique space that these towers offer.

One notable example of these Grade A towers is 40 Leadenhall, due for completion imminently, which is 98% pre-let when considering current under-offers. When evaluating all Grade A towers completed or scheduled for completion this year (such as 40 Leadenhall and 1 Leadenhall), 42% of the space has been pre-let over a year prior to completion, compared to 28% for non-tower completions. Furthermore, 57% of the space is leased before completion, compared to under half (47%) for non-tower properties. Highlighting the strong demand occupiers are facing to secure space in a tower.

The robust demand from occupiers is further evidenced by the fact that 27% of office take-up in the first four months of this year was in tower spaces (bolstered by Citadel’s 250,000 sq ft pre-let of 2 and 3 Finsbury Avenue), up from 15% of the total take-up last year. However, in the upcoming quarters, we anticipate a potential decrease in this percentage due to the diminishing availability of space in city towers. Factoring in current under-offers, the vacancy rate is projected to be just 3%. This is a particularly significant, considering the swift pre-leasing activity observed in the upcoming tower developments that will soon alter London's skyline. Of the city towers currently under construction and due to complete in the next three years there is only 46.6% of the space still available, further illustrating that the city is running low on top tier tower space.

Looking ahead, with a significant portion of space already accounted for, any remaining vacancies will likely be highly contested. Therefore, there is a high chance of record-breaking rents when space does become available, particularly for the top floors, exemplified by instances such as the 42nd floor at 8 Bishopsgate which achieved a rent of £110.50 per sq ft in the last quarter of 2023. Further to this, rental growth in tower properties surpassed average prime rental growth reaching over 6% between 2022 and 2023 proving the competitive nature for the remaining space.

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Contact Ed Robinson

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