The City of London skyline. BNP Paribas predicts that the real estate office market in the UK capital seems set for a better year in 2024 than it experienced in 2023. EPA
The City of London skyline. BNP Paribas predicts that the real estate office market in the UK capital seems set for a better year in 2024 than it experienced in 2023. EPA
The City of London skyline. BNP Paribas predicts that the real estate office market in the UK capital seems set for a better year in 2024 than it experienced in 2023. EPA
The City of London skyline. BNP Paribas predicts that the real estate office market in the UK capital seems set for a better year in 2024 than it experienced in 2023. EPA

Is London office space a sleeping giant or a dead duck?


Matthew Davies
  • English
  • Arabic

Filling London's offices has been an uphill task in recent years, with 2023 being particularly miserable.

According to figures from BNP Paris Real Estate and MSCI, investment in commercial real estate (CRE) in the UK as a whole laboured last year to achieve £38 billion ($48.23 billion), almost half the figure reached in 2022.

Office occupancy rates struggled and by September there was talk of a "rental recession" in London's prime office markets of the West End, the City and Canary Wharf in the Docklands area to the east.

As metaphorical tumbleweed blew through some of London's prime office space, analysts at the American investment bank Jeffries downgraded shares in several of the UK's largest office landlord companies, including British Land and Derwent.

"Retail was technology's first casualty and we think offices are next," a Jefferies research note said at the time.

"Utilisation has shrunk and landlords are losing pricing power as tenants offload surplus space."

But, almost six months later, some are seeing a light at the end of the tunnel.

"Last year was quite sobering," said Vanessa Hale, head of research and insights at BNP Paribas Real Estate. "We did not have a brilliant investment market."

Lights on in Britannia Tower, City of London. Demand for prime office space is expected to rise in 2024, says BNP Paribas. Getty Images
Lights on in Britannia Tower, City of London. Demand for prime office space is expected to rise in 2024, says BNP Paribas. Getty Images

But unlike the UK real estate trends of residential, retail, industrial and hotels, investment in office space actually climbed higher in the final quarter, albeit by a tiny amount, prompting some to speculate that an end to the rental recession might be in the offing.

“We’re quite optimistic for the year," Ms Hale said.

“There’s a lot of confidence that the office market investment world will continue to grow this year.”

London office occupancy rates improved slowly across the course of 2023, according to the consulting firm Remit, although overall the levels were far below what was the norm before the pandemic.

By October, London was experiencing office occupancy rates above 50 per cent, according to Remit's Return Report. Before the pandemic, occupancy rates tended to fluctuate between 60 per cent and 80 per cent.

Many predict that investment will flow back into London's CRE market, because there is now a level of certainty on the direction, if not the timing, of interest rates.

Big global investors do not care about when interest rates are going to go down, because they know that they will eventually, according to Giulio Baratta, head of DMC Corporates EMEA at BNP Paribas.

“Investors are focusing more than what we expected a few months ago into some of the asset classes that (a) where repriced through the last couple of years and got cheaper to buy and (b) into the sectors that are more dependent on the fixed income and interest rate cycle – one is infrastructure, the other is real estate,” he said.

Jobs equal demand

While the number of available jobs and those seeking them both fell during 2023, according to analysts at Morgan McKinsey, a pick-up in London's employment figures is expected by the second half of this year.

“The job growth forecast [for London] is going to outperform Paris, Berlin and Frankfurt in four of the next five years," said Argie Taylor, head of International Investment Group at BNP Paribas Real Estate. "That’s good; that’s demand embedded."

In addition to a modest increase in jobs, many companies are now either ordering or enticing their staff to come into the office more often.

The trend over 2023 was to move from three days in the office to four days.

"Hybrid working for office-based staff is the new normal," said Lorna Landells of Remit Consulting.

"Despite the insistence by some high-profile businesses that staff should return to their desks full time, this is clearly not happening universally."

Figures from Transport for London show that commuting levels are far lower on Fridays than was the case prior to the pandemic and serve as just one illustration how hybrid working is now part of the working landscape.

It's also shaping the decisions some of London's major companies are making.

HSBC’s headquarters in Canary Wharf. The bank will be moving from the 45-storey building in London's Docklands to the Panorama St Paul's development in the City. Getty Images
HSBC’s headquarters in Canary Wharf. The bank will be moving from the 45-storey building in London's Docklands to the Panorama St Paul's development in the City. Getty Images

Last year, the global banking company HSBC decided to move from its monolithic headquarters at Canary Wharf in Docklands, in the east of London, to the City.

By 2027, when the move is expected to be completed, HSBC will have swapped 102,000 square metres of office space in Canary Wharf for 52,000 square metres at the Panorama St Paul's development in the City of London.

HSBC is not the only major corporation looking to reduce its office space as demand becomes reshaped by hybrid working patterns, carbon-reducing requirements and employee desires.

A survey by property agent Knight Frank last year found half the world's big employers plan to shrink their office space by between 10 per cent and 20 per cent over the next three years.

For Mr Taylor, the whole concept of hybrid working needs to be about balance and negotiation.

“I think it could be damaging for a corporate to turn around and say ‘you need to be in the office five days a week’ and put it into their contracts, like it was for all of us 20 years ago," he said in response to a question from The National.

"But if you say less than three days a week, you’re also impacting your corporate culture. I think it’s got to be a hybrid set-up. It’s got to be worth people coming into the office and when they’re at home they’ve actually got to have a productive day.”

'There is a lack of supply coming'

The opportunity for investors in London's office market lies in the confluence of two factors: the growth of jobs and the supply of space. As far as BNP Paribas's analysis is concerned, as they move in opposite directions, rents will increase.

About 40 per cent of all office properties in development in the City of London have been pre-let and there's nothing coming down the pipeline in the next few years that hasn't already been snapped up, according to Mr Taylor.

“There is a lack of supply coming. We’ve got resilient jobs growth, so, there is going to be a longer-term supply shortage. There’s a flight to prime – you can’t buy endless buildings on Gresham Street or Bond Street.

"There is limitation; there is scarcity in the prime locations and, therefore, there is only upward pressure on rents.”

An estate agent's sign on commercial office space in the City of London, UK. Experts say London's office space market is in a state of complicated flux. Getty Images
An estate agent's sign on commercial office space in the City of London, UK. Experts say London's office space market is in a state of complicated flux. Getty Images

Prime is the key. Rental money is chasing prime offices in London, and while years ago that just meant an address, nowadays it includes amenities for staff and compliance with regulations over carbon footprints.

According to Oktra's London Office Rent Report, a limited supply of best-in-class spaces has led to "further growth in London’s prime rent", with rents in the West End now reaching £135 per square foot and those in the financial district of the City at £77.50 per square foot.

For Mr Taylor, as far as best-in-class Grade A office rentals in the City of London are concerned, that spells built-in demand for the future.

“To build a building that is green and has amenities means the rents will go up," he said.

"To build a brand-new office building in the City, you need an average rent of £85 per square foot. Prime rents are now £77 per square foot – so, that’s an embedded 12 per cent growth.

"Which is why supply is dipping down."

Number-crunching by the commercial real estate agents Cushman & Wakefield concluded that the City of London had its best quarter of office leasing activity since 2006 in the final three months of last year, largely driven by HSBC's decision to move.

“The strong take-up figures in 2023, particularly in the final quarter, reflect the ongoing attractiveness of London's office market to occupiers," said Ben Cullen, head of UK Offices at Cushman & Wakefield.

"Despite economic challenges, leasing activity has held up well, especially for Grade A space. With active requirements at record levels but constraints on new supply, we expect competition amongst tenants for the highest quality space to intensify further in 2024.”

Concerns across the Atlantic

Nonetheless, the expectation that London's prime office rental market is set for take-off should be tempered with some caveats, not least the possibility of shocks to an already battered UK economy.

There are also concerns coming from the other side of the Atlantic where some experts predict that if the commercial real estate market in the US continues to get more distressed and default levels rise sharply, another banking crisis could be triggered.

An office building at 1740 Broadway in New York City. Commercial real estate deals are picking up in the United States, but valuations have fallen. Bloomberg
An office building at 1740 Broadway in New York City. Commercial real estate deals are picking up in the United States, but valuations have fallen. Bloomberg

Higher interest rates and falling property values mean the risk that loans go "underwater" increases, which creates a scenario similar to the collapse of Silicon Valley Bank last year.

But Richard Choi, head of real estate advisory at BNP Paribas, feels that significant defaults on loans in London are unlikely.

"Our sector did learn a lesson from the last downturn, which was not to be over-leveraged," he said.

"We haven’t seen any major distress come through. As of yet we haven’t seen a huge wave of non-performance. I'm not suggesting that won’t come, but it’s certainly not our base case.”

There are many elements at play in London office space at the moment and many more that seem to be waiting in the wings for 2024. If the optimists are right, investors in prime CRE in central London could be set for a much more promising year than last year.

In its recent guide to office rents in London, the workplace specialists K2 Space said the cost of office space in 2023 "shows a complex landscape, undergoing transformative changes that echo global shifts in work culture, technology and an increased interest in sustainability".

Usually a growing population and limited space would continue to push demand for all types of real estate higher. But the new world of work and prescriptions for green buildings are tweaking that assumption at the edges in a way that commands investors to be more savvy and more circumspect.

While the light at the end of the tunnel looks dim, many of those involved in London's CRE market will be hoping investors continue to take heed of a quip made about 100 years ago by actor and social commentator Will Rogers: “Don’t wait to buy real estate, buy real estate and wait.”

The specs

Engine: 1.5-litre turbo

Power: 181hp

Torque: 230Nm

Transmission: 6-speed automatic

Starting price: Dh79,000

On sale: Now

UAE jiu-jitsu squad

Men: Hamad Nawad and Khalid Al Balushi (56kg), Omar Al Fadhli and Saeed Al Mazroui (62kg), Taleb Al Kirbi and Humaid Al Kaabi (69kg), Mohammed Al Qubaisi and Saud Al Hammadi (70kg), Khalfan Belhol and Mohammad Haitham Radhi (85kg), Faisal Al Ketbi and Zayed Al Kaabi (94kg)

Women: Wadima Al Yafei and Mahra Al Hanaei (49kg), Bashayer Al Matrooshi and Hessa Al Shamsi (62kg)

Will the pound fall to parity with the dollar?

The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.

Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.

New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.

“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.

The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.

The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.

Bloomberg

Pros%20and%20cons%20of%20BNPL
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David Haye record

Total fights: 32
Wins: 28
Wins by KO: 26
Losses: 4

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UAE currency: the story behind the money in your pockets
Racecard
%3Cp%3E1.45pm%3A%20Bin%20Dasmal%20Contracting%20Cup%20%E2%80%93%20Maiden%20(PA)%20Dh50%2C000%20(Dirt)%201%2C200m%3Cbr%3E2.15pm%3A%20Al%20Shafar%20Investment%20Cup%20%E2%80%93%20Maiden%20(TB)%20Dh60%2C000%20(D)%201%2C200m%3Cbr%3E2.45pm%3A%202023%20Cup%20by%20Emirates%20sprint%20series%20%E2%80%93%20Handicap%20(TB)%20Dh84%2C000%20(D)%201%2C200m%3Cbr%3E3.15pm%3A%20HIVE%20Cup%20%E2%80%93%20Handicap%20(TB)%20Dh68%2C000%20(D)%201%2C400m%3Cbr%3E3.45pm%3A%20Jebel%20Ali%20Mile%20Prep%20by%20Shadwell%20%E2%80%93%20Conditions%20(TB)%20Dh100%2C000%20(D)%201%2C600m%3Cbr%3E4.15pm%3A%20JARC%20Cup%20%E2%80%93%20Maiden%20(TB)%20Dh60%2C000%20(D)%201%2C600m%3Cbr%3E4.45pm%3A%20Deira%20Cup%20by%20Emirates%20Sprint%20series%20%E2%80%93%20Handicap%20(TB)%20Dh76%2C000%20(D)%201%2C950m%3C%2Fp%3E%0A
Abu Dhabi GP starting grid

1 Lewis Hamilton (Mercedes)

2 Valtteri Bottas (Mercedes)

3 Sebastian Vettel (Ferrari)

4 Kimi Raikkonen (Ferrari)

5 Daniel Ricciardo (Red Bull)

6 Max Verstappen (Red Bull)

7 Romain Grosjean (Haas)

8 Charles Leclerc (Sauber)

9 Esteban Ocon (Force India)

10 Nico Hulkenberg (Renault)

11 Carlos Sainz (Renault)

12 Marcus Ericsson (Sauber)

13 Kevin Magnussen (Haas)

14 Sergio Perez (Force India)

15 Fernando Alonso (McLaren)

16 Brendon Hartley (Toro Rosso)

17 Pierre Gasly (Toro Rosso)

18 Stoffe Vandoorne (McLaren)

19 Sergey Sirotkin (Williams)

20 Lance Stroll (Williams)

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%3Cp%3E%3Cstrong%3EDirectors%3A%3C%2Fstrong%3E%20Aaron%20Horvath%20and%20Michael%20Jelenic%0D%3Cbr%3E%3Cstrong%3EStars%3A%3C%2Fstrong%3E%20Chris%20Pratt%2C%20Anya%20Taylor-Joy%2C%20Charlie%20Day%2C%20Jack%20Black%2C%20Seth%20Rogen%20and%20Keegan-Michael%20Key%0D%3Cbr%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%201%2F5%3C%2Fp%3E%0A

As You Were

Liam Gallagher

(Warner Bros)

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Specs

Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request

Yuki Means Happiness
Alison Jean Lester
John Murray 

Quick pearls of wisdom

Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”

Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.” 

Racecard:

6.30pm: Mazrat Al Ruwayah (PA) | Group 2 | US$55,000 (Dirt) | 1,600 metres

7.05pm: Meydan Sprint (TB) | Group 2 | $250,000 (Turf) | 1,000m

7.40pm: Firebreak Stakes | Group 3 | $200,000 (D) | 1,600m

8.15pm: Meydan Trophy | Conditions (TB) | $100,000 (T) | 1,900m

8.50pm: Balanchine | Group 2 (TB) | $250,000 (T) | 1,800m

9.25pm: Handicap (TB) | $135,000 (D) | 1,200m

10pm: Handicap (TB) | $175,000 (T) | 2,410m.

Know your Camel lingo

The bairaq is a competition for the best herd of 50 camels, named for the banner its winner takes home

Namoos - a word of congratulations reserved for falconry competitions, camel races and camel pageants. It best translates as 'the pride of victory' - and for competitors, it is priceless

Asayel camels - sleek, short-haired hound-like racers

Majahim - chocolate-brown camels that can grow to weigh two tonnes. They were only valued for milk until camel pageantry took off in the 1990s

Millions Street - the thoroughfare where camels are led and where white 4x4s throng throughout the festival

Wicked: For Good

Director: Jon M Chu

Starring: Ariana Grande, Cynthia Erivo, Jonathan Bailey, Jeff Goldblum, Michelle Yeoh, Ethan Slater

Rating: 4/5

A State of Passion

Directors: Carol Mansour and Muna Khalidi

Stars: Dr Ghassan Abu-Sittah

Rating: 4/5

SPEC%20SHEET%3A%20SAMSUNG%20GALAXY%20Z%20FOLD5
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Honeymoonish
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What are the influencer academy modules?
  1. Mastery of audio-visual content creation. 
  2. Cinematography, shots and movement.
  3. All aspects of post-production.
  4. Emerging technologies and VFX with AI and CGI.
  5. Understanding of marketing objectives and audience engagement.
  6. Tourism industry knowledge.
  7. Professional ethics.
What is a robo-adviser?

Robo-advisers use an online sign-up process to gauge an investor’s risk tolerance by feeding information such as their age, income, saving goals and investment history into an algorithm, which then assigns them an investment portfolio, ranging from more conservative to higher risk ones.

These portfolios are made up of exchange traded funds (ETFs) with exposure to indices such as US and global equities, fixed-income products like bonds, though exposure to real estate, commodity ETFs or gold is also possible.

Investing in ETFs allows robo-advisers to offer fees far lower than traditional investments, such as actively managed mutual funds bought through a bank or broker. Investors can buy ETFs directly via a brokerage, but with robo-advisers they benefit from investment portfolios matched to their risk tolerance as well as being user friendly.

Many robo-advisers charge what are called wrap fees, meaning there are no additional fees such as subscription or withdrawal fees, success fees or fees for rebalancing.

COMPANY%20PROFILE
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The specs: 2018 Nissan Patrol Nismo

Price: base / as tested: Dh382,000

Engine: 5.6-litre V8

Gearbox: Seven-speed automatic

Power: 428hp @ 5,800rpm

Torque: 560Nm @ 3,600rpm

Fuel economy, combined: 12.7L / 100km

Jetour T1 specs

Engine: 2-litre turbocharged

Power: 254hp

Torque: 390Nm

Price: From Dh126,000

Available: Now

Polarised public

31% in UK say BBC is biased to left-wing views

19% in UK say BBC is biased to right-wing views

19% in UK say BBC is not biased at all

Source: YouGov

UAE's final round of matches
  • Sep 1, 2016 Beat Japan 2-1 (away)
  • Sep 6, 2016 Lost to Australia 1-0 (home)
  • Oct 6, 2016 Beat Thailand 3-1 (home)
  • Oct 11, 2016 Lost to Saudi Arabia 3-0 (away)
  • Nov 15, 2016 Beat Iraq 2-0 (home)
  • Mar 23, 2017 Lost to Japan 2-0 (home)
  • Mar 28, 2017 Lost to Australia 2-0 (away)
  • June 13, 2017 Drew 1-1 with Thailand (away)
  • Aug 29, 2017 v Saudi Arabia (home)
  • Sep 5, 2017 v Iraq (away)
End of free parking

- paid-for parking will be rolled across Abu Dhabi island on August 18

- drivers will have three working weeks leeway before fines are issued

- areas that are currently free to park - around Sheikh Zayed Bridge, Maqta Bridge, Mussaffah Bridge and the Corniche - will now require a ticket

- villa residents will need a permit to park outside their home. One vehicle is Dh800 and a second is Dh1,200. 

- The penalty for failing to pay for a ticket after 10 minutes will be Dh200

- Parking on a patch of sand will incur a fine of Dh300

The Bio

Favourite Emirati dish: I have so many because it has a lot of herbs and vegetables. Harees  (oats with chicken) is one of them

Favourite place to go to: Dubai Mall because it has lots of sports shops.

Her motivation: My performance because I know that whatever I do, if I put the effort in, I’ll get results

During her free time: I like to drink coffee - a latte no sugar and no flavours. I do not like cold drinks

Pet peeve: That with every meal they give you a fries and Pepsi. That is so unhealthy

Advice to anyone who wants to be an ironman: Go for the goal. If you are consistent, you will get there. With the first one, it might not be what they want but they should start and just do it

Scoreline:

Manchester City 1

Jesus 4'

Brighton 0

Going grey? A stylist's advice

If you’re going to go grey, a great style, well-cared for hair (in a sleek, classy style, like a bob), and a young spirit and attitude go a long way, says Maria Dowling, founder of the Maria Dowling Salon in Dubai.
It’s easier to go grey from a lighter colour, so you may want to do that first. And this is the time to try a shorter style, she advises. Then a stylist can introduce highlights, start lightening up the roots, and let it fade out. Once it’s entirely grey, a purple shampoo will prevent yellowing.
“Get professional help – there’s no other way to go around it,” she says. “And don’t just let it grow out because that looks really bad. Put effort into it: properly condition, straighten, get regular trims, make sure it’s glossy.”

Updated: February 24, 2024, 7:00 AM