Downward pressure on office rents persists as volumes grow
The period between the third quarter of 2020 and the first quarter of 2021 saw a dramatic increase in the volume of office leasing, but downward pressure on rental prices continues, new research from DeVono Cresa shows.
Indeed, the consultancy firm revealed in its Central London Office Market Snapshot that the total volume of office leasing for Q1 2021 stood at 1.6m following a 27% increase against the previous quarter. However, despite the sharp rise, this figure is still significantly below the long-term average quarterly volume of office leasing, which stands 2.9m square feet.
In addition, a downward pressure on rent still exists despite the growing demand. The report’s authors wrote: “Prime rents for both Grade A and Grade B have been under downward pressure over the past twelve months in the face of increasing availability and a low level of transactions. The rate of decline slowed somewhat at the end of 2020, with our latest data showing that there has been no change over the course of Q1 2021. The average prime rent across central London remains 6% lower than a year ago, with the spread covering movements of 0% through to -13%.”
Looking ahead, the authors pointed out that the pressure to reduce rents had not eased despite the rate of decline slowing over the previous two quarters. They added: “The volume of demand is unlikely to significantly spike in the remainder of 2021, with a gradual emergence from lockdown restrictions and for most businesses understanding the impact of a new flexible working environment. We expect that businesses in 2021 and 2022 will continue to benefit from weakened rental levels and advantageous incentive packages.
“As confidence levels continue to intensify both from a corporate and individual stance, and a lifting of restrictions allow more people to return to their workplaces, we do expect more businesses to commence the search for their next office. For many this search will be different, it will be informed by a greater number of factors, not least of all by a shift in working practices from the majority of workforces, and ultimately how we use the space when we are in. These are questions that were already being asked pre-COVID. The pandemic has forced companies to find answers sooner and should expect greater clarity on working practices as we progress through 2021.”