London office market sees sharp decline in leasing activity

The London office leasing market kicked off 2024 with a significant downturn, according to a new report from Devono.The London office leasing market kicked off 2024 with a significant downturn, according to a new report from Devono. After a strong end to 2023, leasing activity plummeted by 45 percent in the first quarter, with only 2.3 million sq ft of space leased. This falls short of the 5-year average for Q1 and marks the lowest total since late 2022. The report attributes the decline to a combination of economic factors, including a recent recession and rising inflation. Businesses are cautious about committing to new office space in this uncertain climate.

The report also highlights a shift towards smaller leasing transactions. Tenants are opting for more modest office footprints, with the most popular size range being 500-2,500 sq ft. This trend aligns with a growing preference for flexible working arrangements.

Despite the overall decline, there are some bright spots in the report. The City of London is experiencing a surge in interest, capturing over half of the leased space in Q1. This marks the highest quarterly share for the City in three years. Additionally, Docklands saw a significant increase in leasing activity compared to the previous quarter.

The tech sector is leading the charge in terms of leasing activity, surpassing the traditionally dominant financial sector for the first time since late 2021. Tech companies accounted for 22 percent of the total space leased, while the financial sector’s share dropped to a post-pandemic low of 21 percent.

Key Takeaways

  • Leasing activity in London dropped 45 percent in Q1 2024 compared to Q4 2023.
  • Smaller office spaces are in higher demand, with a rise in deals between 500-2,500 sq ft.
  • The City of London and Docklands saw an increase in leasing activity.
  • The tech sector is now the leading tenant group, surpassing the financial sector.

The report suggests that while the London office market is facing headwinds, there are also pockets of opportunity. Businesses are adapting to changing workstyles and economic conditions, leading to a shift in leasing trends.