While the volume of office leasing increased dramatically between Q3 2020 and Q1 2021, a downward pressure on rental prices still remains, according to new research from DeVono Cresa.
In its Central London Office Market Snapshot, the consultancy firm said that while the long-term average quarterly volume of office leasing usually stood at 2.9m square feet, far above the Q1 2021 figure of 1.6m square feet. This is despite that figure rising 27 per cent since the previous quarter.
Yet despite the growing demand, a downward pressure on rents still exists. 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 per cent lower than a year ago, with the spread covering movements of 0 per cent through to -13 per cent.”
Looking ahead, the authors said that while the rate of decline had slowed over the rprevious two quarters, the pressure to reduce rents had not lifted. 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.”
They went on: “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.”
