London’s commercial property market to keep growing as staff ordered back to the office
The green shoots which sprang up earlier this year in London’s commercial property market look set to continue into 2025, with real estate companies looking at a “cyclical growth opportunity”.
London-listed property development firm Helical reported a minor recovery in the value of its property portfolio after several years of market uncertainty this morning.
Its chief executive, Matthew Bonning-Snook, said his focus was on shaping the company to “best capture the cyclical growth opportunity”. The firm is hoping to develop a portfolio of premium office space amid an anticipated shortage of quality supply in the next few years.
West End’s biggest landlord Shaftesbury Capital similarly told markets this morning that leasing demand was “strong across all uses” in the third quarter, with its West End estates “busy and vibrant coming into the Christmas trading period”.
The company has completed £15.9m of new leases and renewals in the second half of the year to date, nine per cent ahead of June 2024.
The two results continue the post-election trend towards stability in the property market, particularly as interest rates come down.
Earlier in November, Cushman & Wakefield and Savills both reported that the central London property market has begun to stabilise, while British property investment trust Landsec’s half-year results pointed to the same trend.
Firms increasingly order staff back to office
In the last few months, PwC, Santader and Amazon have all pushed staff to return to the office – PwC told its employees and partners just last week that its new hybrid working policy would require them to spend at least three days a week with clients or in the office.
Boots and HS2-constructor Laing O’Rourke have both ordered their staff back to the office full time. Many have stated hopes for more in-person collaboration, ultimately aiding in a much-needed productivity boost.
The trend is set to boost demand for commercial office space and will likely to reverse the downsizing trend post-pandemic.
Landsec in particular has noted a trend to “high-quality space in best locations” – sustainable, high-tech and modern offices.
“The good availability of credit remains supportive to this [trend], although we are mindful that changes in longer-term interest rates will likely influence the pace at which momentum improves from here,” Landsec said.
Tight supply to push up prices
For office space, supply of high-quality buildings which adhere to government sustainability and energy guidance is low (but growing), while retail firms are competing over shops in the best locations as they focus more on flagship stores.
While in retail, co-head of global retail at Savills Sam Foyle said that retailers are “responding to evolving consumer preferences, focusing on securing strategic locations to enhance brand presence.”
Landsec, which operates in real estate across multiple sectors, have noted a trend from retail brands to fewer, bigger and better stores, with “significant upsizes and lettings” from leading brands such as Primark, Pull&Bear, Bershka, Sephora and JD Sports.
Most firms have therefore warned that tight supply will push up the price of commercial property.
Savills found that prime commercial rents rose 1.5 per cent between the second and third quarter of 2024. Rents have risen by 13.1 per cent in the last year.
But Helical has proclaimed that “now is the time to build” and earlier this year, one of London’s biggest landlord’s GPE said it would raise up to £350m to invest in new properties across London.
If the upswing in London’s property sector brings more investment to the market, supply may yet loosen.