Offices always held the top of the list for the most popular types of property investments in London. But the pandemic seriously shattered this sector.
According to the report of EG Radius consulting group, the number of offices let in London, hit the record minimum twice in 2020. The volume of offices sales hardly reached £7.1 bn by the end of 2020, which is a third less than in 2019 and a half of the 5 years’ average.
The market structure also changed: in 2019 financial sector dominated the offices but in 2020, TMT (technologies, media, telecommunications) became the leader again. TMT companies occupied 22,2% of all office spaces in 2020, which reflects the longer-term trend: this sector has been creating the largest portion of demand for the last 5 years.
Share of London Office Annual take-up, selected business sectors, 2014-2020.
|Healthcare and Education||3,2%||2,8%||3,3%||1,7%||7,8%|
|Services office operators||4,9%||14,9%||14,3%||16%||5%|
The largest dropdown was among serviced office operators which fell from a 16% share of annual take-up in 2019 to just 5% this time around.
Serviced offices are flexible office workspaces occupied by several small companies or even individuals on a shorter-term basis (usually 1-year
contracts). Their business model is usually According to EG Radius, the last six months of 2020 have yielded only one serviced office deal in central London, which was The Office Group’s 70,400 sq ft letting at 210 Euston Road, NW1, in August. As a result, the drop-off in serviced office take-up was a key dynamic underpinning a sharp uptick of available space flowing onto the market in the final quarter of 2020.
We expect most people to return to offices by the summer of 2021, which allows us to predict an increased demand for commercial spaces in the coming months. This forecast is backed by office agents: the number of applications for office lease in March has already surged. Many companies started looking for opportunities and strategies to return to normal working processes. There is a lot of pent-up demand for the right kind of offices that combine a good location with more space to comply with new safety requirements.
Because of social distancing rules, businesses will need more space for the same number of employees which will boost the demand as well. Therefore, investors are very likely to benefit from making a bet on offices now, it is a good point to enter the market.