How Much Does London Office Space Cost?

The Changing Landscape of London Office Space

In 2023, in London and across the world, there is a fluidity and change in the uptake and use of office space. The working world is undergoing significant changes due to structural changes such as the increasing influence of artificial intelligence and the Covid-19 pandemic. 

In recent Economist article, it notes that while the commercial property industry is facing downsizing and increased vacancy rates in global cities like New York, Hong Kong, London, and Paris, a new breed of luxury offices and renovated buildings is emerging, offering high-end amenities and services akin to elite private-members clubs. These offices are in competition to attract tenants and workers back to the office, particularly in competitive cities like New York and London. The way office space is used is changing too.

Where before the pandemic 60% of office space was used for desks, now that’s sustainably lower, with more space dedicated to amenities, such as meditation rooms, bike storage, showers, and outdoor spaces. Many of the luxury offices offer concierges, rooftop bars, and eye-catching entrances and green spaces. In fact, with the growing interest in sustainability and ESG, Landlords are also rushing to spruce up older offices to attract tenants. Moreover, green buildings are becoming popular due to their advantages of attracting higher rents and hedging against obsolescence as countries look to meet their net-zero carbon goals. 

With more staff returning to the office and hybrid working in full operation, it presents an opportune time to assess new occupational strategies amidst a changing work landscape. Hybrid working and other innovations have emerged as viable alternatives to traditional office models, prompting reflection on how best to navigate the evolution of the workplace. While the pandemic has induced substantial disruption, the office has shown remarkable resilience and adaptability in the face of adversity.

Notably, the professional services sector has emerged as a dominant force in London’s commercial property market, accounting for a significant 29% of the total take-up of available office space. This is followed closely by the banking and finance sector at 26%. As the future of work continues to unfold, businesses must remain alert to emerging trends and adaptable in their approach to the evolving landscape of the office. Finding the right office space is crucial. For those planning to set up or relocate their office in London, the cost of office space is one of the most significant factors to consider.

With its booming economy and diverse business landscape, London offers a wide range of office spaces to suit different business needs and budgets. However, the cost of office space in London can vary greatly depending on several factors, such as location, size, type, and amenities. In this article, we will explore the average cost of office space in London, the factors that influence it, and tips to save best utilise your budget for a new office space. Whether you are a startup or an established business, and regardless of the sector you’re in, this guide will provide you with valuable insights to make more informed decisions. The table below is based on data from Lambert Smith Hampton’s analysis of London office rents and rates in their Q2 2022 Analysis.

Transforming Office Space in a Post-Pandemic, Technology-Driven World

The pandemic caused a significant shift in the way businesses operate. Companies have embraced flexible working practices and have repurposed their workplaces to provide a more fluid environment. However, this shift towards flexible working is not universal, and occupiers are still navigating new ways of working and looking to improve the office experience for their employees. As a result, there is a need to redefine the role of office space in a post-pandemic world. Another driving force in the use of office space is smart building technology. In the modern office environment, companies will become increasingly reliant on analytics from sensors and smart building infrastructure in making key decisions about the use of office space (for example, areas are frequently occupied, how many people are using a space, and when those spaces are in use). These workplace patterns will dictate office design, usage, size, and location. Company culture and leadership are the determining factors driving these decisions, and workplace rules and strategies are being implemented based on individual business circumstances as there is no one-size-fits-all solution.

Organisations are also looking to create meaningful experiences in the office by positioning their workplace as a platform to build a community, enable collaboration, and support talent attraction and retention. Numerous reports and surveys suggest that employees, especially the new generation, are willing to turn down a job that does not include a work-from-home option. This could impact future hiring strategies, productivity, and well-being. As businesses seek greater flexibility within their workplaces, leases offering flexibility for tenants are becoming more popular, and tenants are opting for shorter leases in ‘plug-and-play’ spaces, which streamline their processes for occupying new premises without the long-term commitment.

A Balancing Act of Flexibility and Quality

The outlook for the London office market in 2023 is heavily influenced by the significant changes that have taken place in recent years. One of the most notable changes has been the rise in demand for flexibility, driven by both employees and business owners. The pandemic has accelerated the adoption of hybrid working, with employees seeking increased flexibility through increased working-from-home allowances, while business leaders are looking for greater flexibility in their leases.

This has led to a demand for shorter lease terms, expansion and reduction within existing agreements, and improved frequency of break clauses. Despite the increased demand for flexibility, it is clear that the office will continue to perform an important function both now and in the future. Employee commuting routes, talent attraction, and employee well-being will continue to play a crucial role in decisions about office location and space. And while the office has been scrutinised in line with the increased demand for flexibility, it will remain an essential component of the business.

Landlords are also investing in the sustainability of their buildings and improving technology solutions within their properties, responding to tenants’ expectations for quality spaces that offer a balanced, well-considered environment for staff. These things remain crucial for tenants and will play a pivotal role in restoring confidence in the workplace. This, along with pent-up demand in the market, underpins the confidence for a return to regular investment activity. 

However, inflation rates pose a slight threat to an immediate return to the investment activity seen in London. The upgrades that landlords are making to their properties show promise and offer incentives for investment, which is predicted to steadily pick up once businesses begin to execute their new workplace strategies.

Further Reading 

1. CBRE UK. (2022). Central London Office Figures Q4 2022. Retrieved from https://www.cbre.co.uk/insights/figures/central-london-office-figures-q4-2022.
2. CBRE UK. (2023). UK Real Estate Market Outlook 2023: Office. Retrieved from https://www.cbre.co.uk/insights/books/uk-real-estate-market-outlook-2023/office.
3. JLL UK. (n.d.). Central London Office Market Expected to See 10m Sq Ft of Space. Retrieved from https://www.jll.co.uk/en/newsroom/central-london-office-market-expected-to-see-10m-sq-ft-of-space-.
4. Knight Frank. (2022). The London Office Market Report 2022 Q2. Retrieved from https://content.knightfrank.com/research/104/documents/en/the-london-office-market-report-2022-q2-9297.pdf.
5. Lambert Smith Hampton. (2022). London Rents and Rates Q2. Retrieved from https://www.lsh.co.uk/-/media/images/lsh/research/london-rent-rates-2022-q2/london-rents-and-rates-q2.ashx?la=en&hash=28AD93368CE05889597F025E6649A658AE99A63E.
6. JLL UK. (2022). Q4 2022 Central London Office Market Report. Retrieved from https://www.jll.co.uk/en/trends-and-insights/research/q4-2022-central-london-office-market-report#:~:text=Quarterly%20take%20up%20reached%20just,of%2010.3m%20sq%20ft.
7. The Economist. (2023, January 19). The Rise of the Uber-Luxurious Office. Retrieved from https://www.economist.com/finance-and-economics/2023/01/19/the-rise-of-the-uber-luxurious-office.
8. Esri. (n.d.). Mapping London’s Office Market. Retrieved from https://storymaps.arcgis.com/stories/5f8c2335515e4e1e8e2c6711b01af0e9.
9. Lambert Smith Hampton. (2022, August). London Office Rents & Rates Q2 2022. Retrieved from https://www.lsh.co.uk/explore/research-and-views/view-points/2022/august/london-office-rents-rates-q2-2022.
10. Google Sheets. (n.d.). London Office Space Data. Retrieved from https://docs.google.com/spreadsheets/d/1KfMvjsJcl4WFKHqyP0GgYtwgq4MWvJNhEy7t5jVRXd0/edit#gid=0.