London office market enters ‘rental recession’ as businesses flee the capital

According to capital markets firm, Jefferies, the office property market in London is in a ‘rental recession’ as the number of empty workspaces across the UK capital, including the West End, City, and Canary Wharf business hubs hits a 30-year high.

Pressuring the shares of many top landlords in London, the commercial property market in the capital has officially entered a ‘rental recession’ when considering office spaces for rent, as key business hubs such as the West End and Canary Wharf have hit the highest number of empty office spaces in 30 years.

In their latest note which downgraded Land Securities (LAND.L), Derwent London (DLN.L), Great Portland Estates (GPEG.L), and British Land (BLND.L), capital markets firm Jefferies has now estimated a contraction of 20% in office usage in London, largely due business tenants’ increasing preference for greener buildings outside of the capital and further north.

Jefferies has estimated that vacancies in the West End sit at 7% with rates in the City and Canary Wharf at 10%, and more than 20% respectively, meaning the market has tipped itself into a rental recession as historically, this begins as soon as 8% is reached.

Landlords in the capital have been steadily losing confidence in the market, with outflows from property funds in August increasing according to the latest Fund Flow Index from the global funds network, Calastone.

According to Calastone, investors in the London office market have pulled £428 million pounds from their property fund holdings in the year to date.

Meanwhile, Facebook and WhatsApp owner, Meta, paid out a record £149 million to escape their London office lease this week on their building near Regent’s Park in the capital, as more businesses than ever move away from the city.

As more and more businesses move out of London and into regional cities such as Manchester and Birmingham, it is no surprise to see the capital enter a ‘rental recession’ in its office market.

Only recently breakdown giant RAC announced they would be moving their headquarters into the media and tech hub, MediaCityUK in Salford Quays, and CBRE announced that both Manchester and Birmingham were amongst the top five cities in the UK that had the strongest prime rental growth.

“Beyond London, our major city office markets are outperforming many of the major European markets - Berlin, Milan, Paris - in terms of prime rental growth and values. While broadly speaking take-up may have slowed, it's clear there is healthy demand from occupiers seeking new, high-quality sustainable office space that enhances connectivity and wellbeing in a collaborative environment.” Matt Willcock, Executive Director of Office Investor Leasing at CBRE.
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To learn more about the mass migration of big businesses away from London and how you can benefit from the incredible influx of businesses and their employees into the regional cities, get in touch with our expert team today or call them directly at +44 (0) 161 791 4600.

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