London’s office market is changing fast and developers need to adapt. The market – increasingly driven by the Technology, Media and Telecommunications sector – is demanding smaller, more diverse, higher density, more flexible office spaces. Meanwhile, new centres are emerging, creating a “polycentric” picture.
These were the main messages from the New London Architecture conference: The London Office Market: Protecting London’s Diverse Workplace Mix on April 25.
Rob Harris, Principal of Ramidus Consulting, warned that the 4 million sqm of office space currently in the pipeline may not be filled. Even though office jobs are forecast to rise by 20 per cent from 2011 to 2031, this is only half the increase in office jobs in the 20 years to 2008. “A slow down in the economy means that we cannot build at the same rate as in the past 20 years.”
Where there is new demand, it will largely be for 5-10,000 and 10-20,000 sq ft office spaces. “The trend in the past 15 years has been to provide larger buildings but we need to think now about providing for smaller occupiers,” he added.
However, 14 megaschemes of more than 1 million sq ft are in the pipeline and London Chamber of Commerce, Chief Executive Colin Stanbridge said there was every prospect that such schemes would be filled because London will continue to draw in multinationals because of its tax, intellectual property and legal system and, above all, because it is a city where people want to live.
Stephen Andrews, Project Design Executive Canary Wharf Group said that the group had significantly changed its 2009 masterplan for 2.7 million sq ft of space at Wood Wharf to reflect changing needs. “Very few occupiers are taking 1m sq ft or more now. TMT is driving demand for new space. The Wood Wharf plan is now more complex. Offices will be multi-tenant with more flexible uses. The two thirds/one third mix of office/residential has changed to one third/two thirds.”
Meanwhile, from 2009 to 2012 500,000 sqm of office space was converted to residential, but with such demand for smaller space, several speakers warned that some of this office space would have been better retained to cater for the increased demand for smaller space.
Rosemarie MacQueen, Strategic Director Built Environment, Westminster City Council, said that there had been “significant losses” of office space converted to resi in the borough in the past couple of years. Office in its Central Activities Zone had dropped from 60 per cent to 48 per cent. The borough was developing a policy whereby residential developers would have to provide offices as well to maintain a balance of uses.
Claire Fallows, a partner at Speechly Bircham, said that 30 out of 33 London boroughs had applied for exemptions to change of use planning legislation allowing for conversion of office space into residential.
In his sector analysis, Digby Flower, Head of London Markets at Cushman & Wakefield, said that the TMT sector had increased its share of the central market from 15 per cent to 30 per cent. “The sector has an appetite for location change but the market must understand what the user wants. These companies can’t spend more than 6 or 7 per cent of their turnover on space, so if you can’t provide that they won’t take the space. It’s as simple as that.” Duncan Swinhoe, Managing Director of Gensler, said that for TMT’s what is important is a good environment around the building but the building itself does not generally need to be very high spec.
TMT will continue to move from the West End to the City Fringe where rents are cheaper. Paul Dunn, Director of architects RTKL, said that the practice had recently moved from Tottenham Court Road to the City Fringe. “Our staff were terrified that it would be a world of suits and ties but we found that it was full of media companies.”
Matt Yeoman, Director of architects BuckleyGrayYeoman, said that TMTs wanted space with “authenticity”, “character”, “coolness” and “cleverness”. With the success of multi-tenant tech developments such as the TEA building in Shoreditch High Street, more big developers want to add big multi-tenant TMT buildings to their portfolio, he added.
The banking and financial sector, which now accounts for 19 per cent of the central market, remains very uncertain, said Digby Flower. In 2010 there were six deals in Canary Wharf over 1 million sq ft. Since then there have not been any over 50,000 sqm. “The banking sector will reinvent itself, the question is how? A lot of B&F buildings are not fit for purpose with trading floors only one third full.”
Insurance is still doing very well and will continue to dominate and grow in the EC3 market. “It is one remaining market that relies on face to face deals. Brokers still go to see underwriters at Lloyds. There were eight major deals last year but occupation in tower buildings will be denser,” said Flower.
With a more polycentric picture and with London’s population now set to soar past 8.6 million by 2016 (ten years ahead of the prediction in the London Plan in 2010), according to the Greater London Authority Chief Economist Jonathan Hoffman, new office centres will emerge, such as Waterloo. “If I was to bet on one area doing particularly well in the future it would be Waterloo,” said Digby Flower. “It has everything: the restaurants, bars, the arts.. the only thing it doesn’t have is the office space.”
The future of London’s office market is hard to predict but Digby Flower had a go: “Banking & Finance, Insurance and Legal will stick to their traditional areas, TMT will fill in the gaps and the gaps not filled will go to resi.”
Damian Arnold, New London Quarterly