London space race takes off: City firms scramble for offices despite new skyscrapers as demand hits highest level since 2000

Demand for office space in the capital has boomed to levels not seen in 15 years, new figures show, as companies, spurred on by the improving economic environment and stability following the General Election, pick up their search for space.

The amount of space under offer in central London leapt by 25 per cent to 4.5m square feet in May compared with the previous month, according to research seen by City A.M.   

This is the highest level of space under offer recorded since November 2000 and 65 per cent above the long-term average of 2.7m sq ft. 

Chris Vydra, executive director at CBRE, which conducted the research, said:   “I have never seen such a variety of different industries going for space at the same time or using lease events as early as they possibly can to relocate. The market is tightening and occupiers are coming out earlier to have a look at opportunities.”

Eleven of the buildings under offer were for space over 50,000sq ft, the largest of which was 374,000 sq ft at 10 Upper Bank Street, which was reportedly let to Deutsche Bank. 

The biggest deal in the City was at Exemplar’s London Fruit & Wool Exchange, where law firm Ashurst has gone under offer for 275,500 sq ft.  Meanwhile Facebook led the charge in the west end after going under offer for 65,900 sq ft at 338 Euston Road.

With space in high demand, developers have been scrambling to keep up, with recent figures from Deloitte Real Estate showing a 24 per cent jump in construction activity in the last six months, taking total office space currently under development to 9.5m sq ft. 

Other major buildings being planned include the former Pinnacle site – now known as 22 Bishopsgate – which was bought by Axa Real Estate earlier this year. The 60-storey building will be able to house 12,000 people when completed in 2019. 

Deloitte’s leasing director Steve Johns said: “Developers are reacting to this lack of supply, hence the 31 new schemes started across central London in the last six months – albeit nine of those are already pre-let. We are also seeing developers preparing sites with demolition levels at 5.1m square feet.” 

Despite a pick-up in activity, Johns said the pressure on supply is unlikely to subside in the near term. “Clearly the speed of delivery means we are not going to see the impact of those until, realistically, 2017 and beyond.”

As a result, rents are expected to continue to rise, with CBRE predicting a 12 per cent hike to £70 per sq ft in the City by the end of the year. 

Last month the boss of property developer Helical Bar Mike Slade predicted that average rents in the City could reach a record £100 per sq ft by 2017 compared with £65 per sq ft today, with Shoreditch escalating to £75 per sq ft. 

Indeed, rents are already being achieved close to that price for the best offices in the City, with the top floor of the Walkie Talkie skyscraper thought have set a new record by going under offer to an mystery firm for over £90 per square feet.

However Vydra said that uncertainty over the outcome of an EU referendum and the possibility of an exit from the European Union is keeping the rise in check: “That one downside factor is tempering the rate of increase in rents, which would otherwise be higher,” he said.

The top floor of the City's towering 20 Fenchurch Street - nicknamed the Walkie Talkie - is believed to havesmashed new rental records, after it went under offer to a mystery firm, City A.M. can reveal. Agents at 20 Fenchurch Street, which is owned by Land Securities and Canary Wharf Group, are thought to have secured almost £90 per square foot on its 34th storey, setting a new record for space over 10,000 sq ft in the City. Agents CBRE and Knight Frank declined to comment.