Lease cycle means West End office market will ‘reset’ by 2025

An ancient snakes and ladders game board to depict the vicissitudes of the office market in LondonA BNP Paribas Real Estate analysis claims that London’s West End office market is on course to ‘reset’ by 2025 following a major leasing event cycle commencing in 2023, which will see a flurry of renewals, expiries and break clauses executed by both landlord and tenant, which will alter the market as we know it by the milestone year.  According to the firm’s own West End data, 40 percent of the market will have a lease event in 2023 and 2024, with equally large volumes to follow in the two subsequent years. This freedom of tenant movement coupled with a restricted supply line, could drive rents on prime buildings from their current 2022 position of £140 sq ft to £200 sq ft in 2023 and £250 sq ft in 2024, and further into 2025 where the initial cycle ends.

Simon Knights, Head of West End Agency at BNP Paribas Real Estate commented: “You might think the confluence of global geopolitics and the challenging economic outlook the UK faces would shake the nerve of the hardiest optimist, but not the core West End occupier. They are moving ahead with their growth plans. Having capitalised on Covid by moving out lease events, they are now growing their businesses to take advantage of their industry growth. Growth that has already seen some financial occupiers balloon in size by 100 percent, 200 percent and in one case 300 percent. If 2022 was a landmark year in seeing rents of £150 being carelessly tossed around as commonplace then 2023 and 2024 will be seen as milestones in resetting the leasing market into 2025 and the years to follow.”

Initial Q3 2022 data shows supply in the West End office market decreased by 16 percent to 2.72m sq ft, down from 3.26m sq ft in Q2. A total of 1.45 million sq ft of office space is set to complete this year with 0.74 million sq ft already available. Vacancy sits at 4.37 percent (5.26 percent Q2) and of that Grade A is only 1.17 percent. (1.6 percent Q2). Take up is dominated by the financial sector at 36.6 percent, with a similar figure for ongoing demand with West End market rents having risen by 21.4 percent since Q3 2021.

On the latest quarterly figures, Simon Knights comments: “The west end office market has defied gravity before so will it continue to do so based on anything more than a mere agent’s puff? The Q3 figures come at an important moment when looking in the rear view mirror to see where the market has come from but more importantly when looking through the windscreen into 2023 and beyond when seeking a roadmap for future direction. Look out for the “stepping stone buildings” in the prime locations that will highlight the rental growth as they become available and let. The strong fundamentals of the market continue to ensure West End rents will continue to climb next year and beyond.”

Image: Game of Heaven and Hell (Jnana Bagi). This old Indian game, known to us as ‘Snakes and Ladders’, was originally a vehicle for teaching ethics. Each square has not only a number but a legend which comprises the names of various virtues and vices. The longest ladder reaches from square 17 ‘Compassionate Love’ to 69 ‘The World of the Absolute’ Wellcome Collection