Revealed: London’s net consolidation footprint

Financial firms have been the biggest net consolidators of space in London over the past four years, according to new figures from EG’s Radius Data Exchange. EG’s analysis shows that almost 1m sq ft more space has been vacated by the sector than newly taken since the 2016 EU referendum. Serviced office operators have been by far the largest net expanders of office space – taking almost 5.5m sq ft more than they have vacated during the same time period. They are followed by the TMT sector, which saw a net take-up of 1.7m sq ft during that time frame. However, stripping out prelet take-up for under-construction or pre-marketed office buildings provides a clearer picture of the in-situ occupational shifts that have taken place over the past four years, and reveals the TMT sector as a net consolidator. When the significant quantum of prelet square footage is removed from the analysis, the TMT activity moves from a 1.7m sq ft net gain to a 40,000 sq ft drop in overall occupied footprint. Professional occupiers, including lawyers and accountants, saw a similar outcome, dropping from a net footprint increase of almost 150,000 sq ft including prelets to a consolidation of more than 400,000 sq ft without. The financial sector is also impacted by the removal of prelet transactions, jumping from a net loss of 800,000 sq ft to a loss of more than 2m sq ft as a result of key development deals being chopped out of the data, including Deutsche Bank’s 469,000 sq ft prelet at 21 Moorfields, EC2, and Brewin Dolphin’s 116,000 sq ft deal at 25 Cannon Street, EC4. Company behaviour In terms of company numbers, looking at the behaviour of all occupiers that either vacated or took space, finance is the sector that boasts the largest net number of expanders since the EU referendum, with 55 more companies expanding than contracting. Some of the bigger net consolidations seen since March 2016 are counterbalancing a large number of smaller expansions (or new financial businesses taking office space in London for the first time). Significantly more companies in the TMT sector are consolidating their core London office footprint than those that are expanding, but the large-scale expansion programmes of certain occupiers are masking a consolidatory approach undertaken by several tech companies that are shifting more employees to flexible or remote working. The flexible revolution Alongside the natural consolidation of overall “core” requirements as a result of shifts in both technology and attitudes, a significant amount of the square footage drop is explainable by measuring the equivalised amount of desks or floorspace that those sectors have taken on flexible terms in serviced offices. For the firms that provide those spaces, looking beyond the current circumstances is difficult, particularly given how sharply the impact will be felt by those providers suffering cash flow issues following the global coronavirus pandemic. However, this behavioural change and shift in office requirements is clearly something which has become more prevalent among the majority of business sectors. If flexible providers can find ways to stay sustainably operational during the pause in activity caused by the Covid-19 crisis, it is likely that their offering (if of sufficient quality) will continue to be sought after by all business sectors during what we hope will be a recovery period once the threat of the virus is diminished. To send feedback, e-mail graham.shone@egi.co.uk or tweet @GShoneEG or @estatesgazette