British Land: return to office driving rents up in London
High demand and low supply are driving office rents up in London as more people return to work during the week, British Land, one of London’s biggest landlords, said.
Office tenants have been focused on high-quality, grade A and ESG-compliant buildings, but the demand for space, due to the lack of new developments, is forcing companies seeking central London workspace to look at older buildings in different locations.
Demand for “good second-hand space in core locations” has increased, said Simon Carter, CEO, British Land. “There’s definitely the trickle-down effect, because the return to the office is much stronger than anyone anticipated.”
Five years on from the pandemic, mid-week occupancy has returned to pre-Covid 19 levels, Carter said: “Return to the office is in full swing and rents are strong.” Many companies have told their staff to return to work four or five days a week.
Office vacancy levels have declined and rents for top quality space are up to £120/sq ft and set to increase further. Some analysts expect prime new build office rents in London to double this year from 2021 levels.
Carter said British Land had made the right call in taking the contrarian view and betting on offices and retail parks after the pandemic. “We invested at a time when there was very little new supply coming into the market, and as a result we are seeing above inflation rental growth as well as renewed investor demand.”
Pre-tax profit shot up at British Land from £15m to £342m, said Carter presenting the company’s annual results. The value of properties in the company’s £9.5 billion portfolio has increased by 1.6% in the last year while rents were up 3%. Occupancy in the portfolio reached 98% and the company has a total development pipeline of more than 10 million sq m.
“The continued occupational strength of our key markets and the resulting above inflation rental growth gives us confidence for the future and in our strategy, despite ongoing macro volatility”, Carter said.
