City of London firms find no more room at the top

According to figures from Savills UK, the estate agent, companies leased 3.1m sq ft of space in the City in the first half of the year, up 12% on the long-term average. Last month, US law firm Proskauer Rose agreed to pay £147 per sq ft for the entire 46th floor of the 8 Bishopsgate tower, smashing a price record set just months earlier by the Brazilian lender, Banco Master.

It’s a far cry from the pandemic, when office leasing activity fell to its lowest level on record. Five years later, companies ordering workers back into the office are finding they need more space.

But the real estate industry has a long lead time – and a dearth of new buildings becoming available in the next few years means competition is about to heat up even more.

That could mean that more companies will struggle, like HSBC, which slunk back to Canary Wharf for extra space earlier this year after it found itself with a “desk shortage” at its new City headquarters, or BlackRock, which has struggled to find space to expand.

Kiran Patel, head of office sector research at Cushman & Wakefield, says the “supply of new, good quality, well-located space” will fall “substantially short of demand” by 2029. Although 9.2m sq ft of office space is under construction in the City of London, 42% of that has already been let, his data shows. Meanwhile, 67%, or 6.2m sq ft, is due to be completed by next year, leaving the businesses hunting for offices in 2027, 2028 and 2029 competing for just 3m sq ft.

In the next five years, there will be 11m sq ft of under-supply, says Shabab Qadar, head of London research at Knight Frank UK.

For developers, the shortage is as frustrating as it is predictable. David Marks, chief executive of the developer Brockton Everlast, blames occupiers. “It’s frankly embarrassing; they completely miscalculated their space needs coming out of Covid,” he says.

Ross Blair, managing director of Hines, says companies are being forced to plan years in advance. “We see businesses with lease events as far out as 2035 already setting their strategies,” he says.

Qadar says developers, stung by the successive disasters of the pandemic, high inflation and high borrowing costs, are still skittish about starting construction. “We’re at risk of losing some of these larger occupiers to other markets,” he warns. “Ultimately, it’s the growth potential of London that is held back as a result.”