Greater London & South East Offices – Outlook 2023

What are the key trends we will see in the Greater London & South East office market in 2023?

Take-up in the Greater London & South East market reached 2.8 million sq ft in 2022, which was only 15% below the five-year average. The market saw positive leasing momentum built throughout the year, with take-up incrementally increasing in each quarter, which culminated in Q4 take-up being the second-highest quarterly total in the post-Covid-19 pandemic era.

While we didn’t predict three UK prime ministers and the war in Ukraine last year, we did predict the ongoing flight to quality, exponential rental growth and the rising demand for green space. Below are the key trends we expect to occur in 2023:

  • Rental growth continues despite turbulent macroeconomic outlook

Prior to 2020, historic data shows that a contraction in GDP results in rental falls in the property market. However, this trend was bucked during the Covid-19 pandemic, with record high headline rents achieved across the Greater London & South East office market. While there continues to be economic headwinds in the short term many economists expect macro conditions to improve in Q4 2023. Additionally, the continued imbalance in supply and demand on ESG-compliant office space has resulted in schemes that offer strong environmental credentials and multiple amenities setting new rental tones. Record high rents were achieved in St Albans, Richmond, Putney, Watford, Maidenhead, Croydon, Heathrow and Windsor in 2022. Further rental growth is expected in 2023, notably in Reading and Maidenhead, where prime rents are expected to surpass £45.00 per sq ft.

  • Continued bias to Grade A space

The ongoing flight to quality in the market was evident in 2022, with 68% of space transacted being Grade A standard, the highest proportion since 2018. We expect this to continue with occupiers seeking aspirational work environments to attract and retain staff in a competitive labour market and support the return to the office. This trend will be more evident amongst corporate occupiers where in 2022, 75% of deals recorded over 20,000 sq ft were located in Grade A buildings.

  • Tech companies to remain resilient

While the recent Big Tech redundancy announcements are concerning for the wider technology sector, we do not expect these announcements to significantly adversely impact occupier demand from the sector in the South East region. The composition of demand from technology occupiers is predominantly from the expansion of smaller to medium-sized technology companies rather than increased expansion of large technology occupiers, with 81% of deals recorded by the sector in the last five years below 20,000 sq ft.

When analysing leasing activity following previous downturns, take-up from technology companies recovered the fastest when compared to other business sectors, which was evident in both 2009 and 2020. Additionally, technology companies accounted for 26% of companies who raised over £30 million in 2022, the highest proportion when compared to other sectors.

  • Return of corporate demand

There was a drop in deals recorded over 20,000 sq ft in 2022 amidst the wider economic and political uncertainty causing relocations to be delayed or aborted. However, there is cautious optimism that there will be an uptick in corporate demand in 2023. There were 28 requirements over 20,000 sq ft in Q4 2022, amounting to 1.07 million sq ft. Notable occupiers searching for over this threshold include The Wood Group, McDermott, Bechtel, Visa and Nomad Foods.

  • Return to office accelerates

Hybrid working is here to stay and a weaker economic environment may lead to a rise in employees returning to the office. Out of sight, out of mind has never been more apparent in a weaker economic climate. LinkedIn reports that solely remote working vacancies listed on the platform have fallen every month since May and are at their lowest level since September 2021 when data started to be collected. This indicates a shift in working pattern expectations from employers, and the increasing use of the office space, even if requirements on the whole are likely to shrink by 10–20%.

  • The expansion of the education sector

The education sector leased 502,000 sq ft of office space across London and the South East in 2022, which was the highest volume in the last ten years. Demand has originated not only from universities currently based in London but also those regional and international institutions seeking new satellite campuses to capture the significant international and post-graduate student market. This trend has continued in 2023 with the recent announcement of Teesside University opening a new 26,000 sq ft satellite campus at Here East, Stratford.