Top London Offices Prosper, While Others Languish

UNITED KINGDOM – The COVID-19 pandemic has severely affected the country’s commercial property market, but prestigious new office towers in London are seeing near record rents and prices, while older buildings and those with lower specifications are languishing, according to a recent report from Bloomberg.

A stark difference is emerging in London’s office market: New buildings that feature premium amenities and sought-after green features are commanding high rents and attracting yield-hungry investors, while other kinds of office premises are being shunned as businesses ditch office space they no longer require as most of their staff work from home.

The disparity can be clearly observed in the City of London and other parts of the UK. Last week, British Land completed the sale of Clarges, a mixed-use project consisting of offices and high-end apartments in the posh area of Mayfair. While the development changed hands for £177 million, the total market value of British Land’s office portfolio dipped by 3.1 percent during the 6 months to September as vacancy levels increased throughout London.

“With so much uncertainty, it is very natural to see a flight to quality and have investors flee to what they perceive to be the best new offices. Unfortunately, I don’t think we know yet what the best is going to be post-pandemic,” commented “Rethinking Real Estate’s” author Dror Poleg.

Another notable deal is BP’s sale of its head office in London’s St. James’s Square for £250 million (S$446 million), which the oil & gas giant claimed is a record price for the vicinity. These are just among the several large office transactions in an otherwise dismal year for commercial property investments in London.

In fact, real estate consultancy JLL revealed that office investment volume in the capital plunged by nearly 45 percent year-on-year to £4.1 billion during the first 3 quarters of 2020.

With Brexit being on the horizon, office builders are adopting a cautious stance in regards to new developments even prior to the virus outbreak. Consequently, businesses on the lookout for big new office premises will have limited choice over the next few years, especially top-notch office buildings that could attract staff to return to the central business district when COVID-19 has been surmounted.

The forecasted dearth in office stock has led to many major leasing deals by companies like law firm Latham & Watkins, as well as streaming giant Netflix. Lazard, a firm involved in asset management & financial advisory has also resumed its hunt for a new HQ in London after temporarily suspending the search during the start of the virus outbreak.

But older office space and those with lower specifications aren’t attracting such strong interest from would-be tenants. Based on a study by JLL, total news leases in London have plunged by 60 percent during the first 3 quarters of the year.

Furthermore, the average monthly rent of prestigious offices in the city have increased by 12 percent since the start of the COVID-19 pandemic in March, while that for office space on the secondary market dropped by 9 percent.

This disparity is spurring office builders to commence new developments despite weak economic prospects.