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Demand for offices in London halved amid lockdown

The demand for office spaces in London is tanking thanks to the coronavirus pandemic, according to a new study. The research also shows that available second-hand office space also spiked over the last year, reflecting the devastating impact the crisis had on the city’s businesses.

Recent years have been characterised by a spike in demand for London’s real estate sector. Despite the uncertainties of Brexit, overseas investment continued to flow into the capital’s office space market, as the low pound continued to make the European financial hub an attractive prospect due to its residual links with the continent. In the first half of 2017 alone, for example, £5 billion in Chinese capital was sunk into the city on this basis.

According to a new study by property advisory firm Bidwells, however, the pandemic has decimated the market over the last year. The consultancy found that London’s availability rate of office space had steadily fallen since 2016, to sit at a low of just over 3 million square feet in 2019. However, following the coronavirus outbreak this more than doubled to 6.6 million square feet.

While this was partially due to new Grade A properties coming onto the market – almost double the amount available in 2019 at just over 1 million square feet – the growth in availability was primarily driven by second-hand space. At almost 2.5 million square feet, the sudden boom in second-hand availability reflects the tumultuous year London’s businesses have faced, with many either vacating their premises to reduce spending amid a huge recession, or collapsing into insolvency, leaving spaces vacant.

While more of this real estate might have been snapped up in prior years, demand has nosedived to less than half of the 10-year-average. Bidwells found that London saw 1.8 million square feet of office space taken up by new occupants in 2020, in stark contrast to the last three years – which each saw more than 4 million square feet taken. The situation was even more pronounced in the more expensive Grade A segment, with less than 500,000 square feet being taken up – compared to more than 1 million in 2019.

Commenting on the research, Sue Foxley, Research Director at Bidwells said, “Central London Office investment has fallen to the lowest level in a decade. The pandemic impacted on investment activity in the Central London office market, with total activity over the year falling to £7.5 billion, the lowest level since the financial crisis impacted years of 2010 and 2011.”

Bidwells anticipates that the market will rebound in 2021, however, as investor interest in London based offices returns. Responding to the rapid roll-out of vaccinations within the UK, overseas investors are again set to dominate the market, and have already completed £4.3 billion in deals during the last quarter of the year. Despite many businesses opting to have flexible working schedules, post-pandemic offices are still seen as a valuable part of the company, serving as an HQ; this is being currently being asserted by a growing number of companies.

This news will come as some relief to businesses who have built their model on serving office workers. During the lockdown months, it was suggested that lower consumer spending linked to offices could see businesses lose out on £12 billion, impacting canteen workers, security guards and waiters could be among those whose jobs hinge upon workers being present in offices.

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