Spaced out! Central London devoid of top quality office space

Companies are not being offered incentives to stay in offices in London’s financial district due to a shortage of top quality space, it has been claimed.

The London market for high quality office space is “supply-constrained” and “modern, efficient space is evaporating”, according to Land Securities chief executive Rob Noel.

Businesses are unlikely to see an increase on the 12-month, rent-free periods they are usually offered as a carrot to sign a five-year lease due to the paucity of alternatives, Noel said.

The strength of the lettings market dictates how likely it is companies will be offered rent-free periods or a complementary office fit-out.

Chris Meredith, head of UK sales at officebroker.com, said: “New space brings new benefits and new opportunities to the commercial market. In a location such as the City, where larger floor plates are less common, a lack of new development can be restrictive so is likely to be welcomed by larger organisations – particularly in light of the current trend for consolidating office space.”

Land Securities and Canary Wharf Group are currently building a skyscraper in central London known colloquially as the Walkie Talkie, which should add to the choice in office space available across the capital.

Insurance company Markel has signed a 20-year deal for floors 26 and 27 of the building at £65 per sq ft, including a rent-free period of 32 months.

Some 19% of office floor space in the tower is now let or going through the legal process, according to a Land Securities trading update.

Meredith believes the construction of the Walkie Talkie along with that of The Shard shows there is still a perceived market for high quality office space in the capital.

He said: “While the arrival of the Shard and other high profile additions to the capital’s skyline suggest developers believe, or expect this demand to exist, a large volume of good quality older stock still exists.

“As this new space enters the market, rents are likely to be restructured and cost-conscious businesses may choose to explore these alternatives.” 

Developers are optimistic that tenants will move into new high quality offices over the next few years as existing lease agreements expire.

No office tenants have been announced for The Shard as of yet, despite it being unveiled earlier this month.