London & UK Office Rental Market Report (2021)
There is a renewed demand for physical workspace despite the ongoing disruption posed by the Coronavirus. Office providers and landlords have been given opportunities to adapt to these changes and attract more occupiers.
Flexspace is becoming the norm for a variety of businesses looking for long-term office space. This office rental market report will take you through the key market trends FreeOfficeFinder have found for 2021.
UK Office Rental Deals in 2021
Although 2020 presented significant challenges for the office rental market, our research based on data from 280 flexible workspaces shows that occupancy in the UK reached an average of 82% in 2021. This figure aligns with pre-pandemic levels.
Despite the ongoing disruption caused by the government’s coronavirus measures, large office deals continued to take place in London. Throughout the year, large and small brands alike looked to set up a hybrid working strategy requiring new and amenity-rich workspaces for teams to meet when not working from home.
For example, in Q2, the tech and consulting company IBM signed for 132,000 square feet at 20 York Road. In Q3 Facebook took on 312,000 square feet in 1 Triton Square. And in Q4 law company Allen & Overy moved into 254,000 square feet at 2 Broadgate.
Speaking with the Evening Standard, Daniel Francis, head of research at property agent Carter Jonas, explained: “The top ten Central London office transactions of 2021 total more than 1.7 million sq. ft. Their common feature is the quality of the space — all the buildings are either pre-let, newly completed, or refitted to grade A standard.”
Our research illustrates that investment in the Central London office market also recovered in 2021, with levels returning to pre-pandemic levels. In Q4, office leasing peaked at more than 2.5m sq. ft. Leasing levels in 2021 totalled 8.4 million sq. ft. – 81% more than in 2020.
Office Occupancy Rates in 2021 By Area
Our research paints an optimistic picture of regional office take-up in 2021. Total regional office occupancy reached 5.8 million sq. ft., up 28% from 2020 (2021 was 8% below the ten-year office take-up average). Again, Grade A office space is in demand – take-up totalled 2.6 million sq. ft. in 2021, representing an increase of 21%.
Regional office supply rose too. According to our data, total regional supply rose by 12% in 2021. Large new office developments which contributed to this increase include 305,000 sq. ft. at 103 Colmore Row in Birmingham, 157,000 sq. ft. at Three New Bailey in Manchester and 94,000 sq. ft. at Cadworks in Glasgow.
London Office Figures
Vacancy rates in London areas varied in 2021. Office data shows that vacancy rates in Central London stood at around 8.8% (more than double the pre-pandemic rate of 3.9%). The City and the Docklands areas of the capital had vacancy rates of over 12.5% (the first time since 2004/5), while West End vacancy rates remained at under 6%.
Sectors Taking More Space in 2021
Regional cities
• The Technology, Media, and Telecom (TMT) sector was the most active, accounting for 21% of regional office occupancy
• 14% of regional office share was taken up by organisations in the Public Services, Education & the Health sector.
• Office take-up was also strong amongst biosciences businesses, with the sector accounting for 11% of overall take-up.
Central London
• In Central London, the TMT sector also came out on top of office take-up, accounting for 30% of occupancy.
• Professional services followed second, accounting for 24% of office take-up.
The Rise of Suburban and Rural Offices
With the working from home (WFH) and working near home trends gaining traction, offices in suburban areas became increasingly sought after in 2021.
In addition to freelancers looking for a more productive work environment, a growing number of larger employers are opening regional hubs or funding coworking memberships for individual employees closer to where they live.
Our research focusing on data from Q1 2021 revealed a 31% rise in demand for suburban workspace, with enquiries for city centre areas falling by 10% in Q1 compared to 2021. Meanwhile, enquiries for office space in rural areas rose by 24% as companies sought to reduce commuting time for employees.
Key Office Market Trends in 2021
Occupiers want flexibility – 43% of office occupiers expect to utilise flex spaces more as part of their post-pandemic operational strategy.
Landlords are meeting demand – traditional landlords are introducing flexible workspace into their portfolios to compete.
ESG (Environmental, Social & Governance) is a focal point – occupiers are prioritising the health and wellbeing of their team as well as green credentials and are paying close attention to factors such as carbon footprint when choosing a new office.
On-demand coworking is key – day passes and on-demand coworking is meeting the needs of occupiers who cannot commit to longer-term membership plans due to unstable cash flow and ongoing uncertainty.
Key Office Market Trends We Anticipate in 2022
• Continued market recovery – if the UK can avoid further lockdowns, we expect the recovery of the market to persist, and the growth and diversification of the flexible workspace sector to continue.
• The collaboration will drive occupancy and design – businesses are citing ‘collaboration’ as one of their top motivators for returning to the office; as such, workspaces will be reconfigured to support teamwork.
• Quality is important – employees want to return to amenity-rich, high-quality workspaces that are worth commuting to. Together with ergonomic furniture, operators will focus on their wellness facilities, programs, and offerings.
• Downsizing – Research shows that 38% of UK SMEs intend to reduce their office footprint. As some organisation's office leases end, we expect that many could look to downsize or move into a location with more flexible contractual terms, such as a managed office or a serviced office.
