One of central London’s biggest listed landlords set a record for leases over the past year, underlining how the challenge of luring workers back to the capital is creating winners amid the property market downturn.
Great Portland Estates (GPE) on Wednesday said that it had signed £55.5mn worth of new leases in the 12 months to the end of March, a 44 per cent increase on the previous period, at rents 3.3 per cent higher than the estimated rental value at the beginning of the period.
The record value of leases comes at a time of high office vacancy in London and other large cities as businesses look to manage their costs and adapt to hybrid working. Modern buildings with top environmental credentials in the west of London have emerged as a rare bright spot in a property market that has also been hit by rising interest rates.
“The idea of a bifurcation between the best and the rest has been central to our strategy for a very long time, and it’s why we love the West End,” said Toby Courtauld, GPE’s chief executive, who said office space now needed to be “magnetic to the customer”.
GPE, which traces its origins to the estate of the dukes of Portland, is focused on renting and developing offices in sought-following west London areas such as Mayfair and St James’s.
Numis analyst Max Nimmo said the performance demonstrated “the flight to quality” as tenants rush for the best office space.
Across London, tenants leased 10.5mn sq ft of office space last year, below the five-year pre-pandemic average of 11mn, according to real estate services company Cushman & Wakefield. Central London’s office vacancy rate has risen from 5 per cent in March 2020 to 8.6 per cent last month, according to property data provider CoStar, which expects the amount of empty space to rise further this year.
Matthew Pointon, senior property economist at Capital Economics, said: “A greater share of office jobs in the capital can be done from home, commute times are generally longer and the expense of a desk in London will incentivise firms to cut space.”
However, the vacancies in the UK capital are not evenly distributed with rates as low as 3 per cent in some West End areas but above 10 per cent in parts of the City and the Docklands area that includes Canary Wharf, according to CoStar.
Courtauld said there were very few top-quality buildings available in the West End, and that economic uncertainty would limit the pipeline of new space. “The supply side is incredibly thin,” he said.
Law firm Clifford Chance announced a deal last autumn to move from its current Canary Wharf office to a GPE building in the City, which is under construction and is billed as a “net zero” development. Courtauld said there was “no doubt” the sustainability credentials were key to securing the law firm as a tenant.
HSBC is considering whether to keep its Canary Wharf headquarters when its lease expires in 2027.
Barclays has instructed agents to market space in one of its Canary Wharf buildings following it shifted staff to its 1 Churchill Place headquarters, React News first reported this week. A person familiar with the matter said the bank made the move as part of a plan set before the pandemic.
