Pre-letting is set to remain a vital component of the UK office market for both occupiers and landlords but, with supply levels falling, tenants are being forced to look further in advance for quality space that fits their needs – four to five years ahead in some cases.
This is according to the latest research from Cushman & Wakefield: The race for space, pre-letting’s impact on the UK office market. The report shows that since the global financial crisis, the UK’s commercial property market has undergone significant systematic change and since 2009 there has been a significant decline in the delivery of new office space.
However, occupier demand has remained robust, even following the EU referendum result, and businesses have remained focused on securing the best solution to their long-term real estate needs. This has resulted in a growing appetite for pre-letting. Over the last 10 years a total of 24.4m sq ft has been pre-let across Central London, amounting to 267 transactions, and most of this (57%) has been in the City.
Chris Dunn, senior insight analyst at Cushman & Wakefield and the author of the report, commented: “London continues to be a destination for a diverse profile of businesses who are dedicated to a presence in the capital for many years to come. High-profile occupiers have committed very publicly to its strength. However, with delivery of new office space falling, we are seeing a new kind of space race play out. To stay ahead of the game pre-let occupiers will increasingly be forced to look even further ahead of time to secure high quality space; this could be four to five years for large transactions.”
The research also identifies a shift in occupier demographics within Central London. The number of jobs in the banking and financial sector is set to fall as consolidation and rationalisation continues. However, forecasts suggest that this loss will be more than offset by increases in headcount in the professional and media & tech sectors. These sectors will play a far greater role in London’s pre-let market over the next five years.