United Kingdom Office Real Estate Market - Growth, Trends, COVID-19 Impact, and Forecasts (2023 - 2028)

The Office Real Estate Market in the United Kingdom is expected to register a CAGR of more than 6% during the forecast period.

Key Highlights

• The recent improvement in economic data and the subsequent reopening of the economy have improved the outlook for the office real estate sector.Leasing momentum is back as most offices are safely implementing return-to-work. Inquiries have picked up around city centers, and so has the leasing activity. The IT and ITeS sectors are among the prime drivers of overall leasing activity in the top cities, and bulk hiring by these firms will influence demand for large, quality office spaces.
• COVID-19 had a mixed impact on the office real estate market in the United Kingdom, including its services. Real estate was badly hit by the COVID-19 pandemic, with a sharp decline in values across all markets and sectors. The office real estate take-up was below normal due to the flexibility given to employees (working from home) by the companies. The lockdown measures have forced millions of people to work from home, and on the other hand, the short-term nature of contracts has left offices with very low occupancy across the United Kingdom.
• The uncertainty surrounding Brexit had already eroded confidence in the United Kingdom office property market. Although Brexit has been sharply put into perspective, leaving the European Union has not helped the United Kingdom address severe labor and material shortages as well as crippling supply chain issues. Since the pandemic began, occupants, for example, have been increasingly renewing their office spaces. Occupants are looking to be in new-generation offices with modern amenities and a focus on health and wellness.

United Kingdom Office Real Estate Market Trends

Declining Vacancy Rates and Increasing Rents of Office Spaces in London

The Greater London and South East office market experienced a resurgence in demand in 2021, following the lower take-up recorded in 2020 as a result of lockdowns.Take-up reached 3.5 million sq ft, which reflected a 46% and 12% increase in the take-up recorded in 2020 and 2019, respectively. The transactional activity was only 2% below pre-COVID-19 levels, illustrating the healthy levels of occupier activity in the market. The Western Sector was the most active geographical region in 2021, accounting for 45% of total take-up.

Several large companies deciding to stay in the area for the long term gave the market a boost of confidence. This included Unilever, ITV, and Intercontinental Hotels Group, which all leased over 50,000 square feet in 2021. There were ten deals recorded over 50,000 sq ft, which was the highest total since 2018 and the second highest quantum in the last five years. Notable transactions in Q4 2021 included Skanska leasing 67,000 sq ft at Leavesden Park, Watford.

Decrease in office real estate investment volume in the United Kingdom

Office real estate used to make up most of the commercial property investment market in the UK, but since the coronavirus (COVID-19) pandemic started, investors have been more interested in industrial real estate. With the eCommerce sector growing and supply chain management becoming more important than ever, so has the industrial and logistics sector. This rise in importance is also seen in the occupier market, where the number of new tenants has been higher than the 10-year average for the past three years in a row.

In the UK, the number of commercial real estate investments has changed over the past few years. Because of the coronavirus (COVID-19) crisis, investment activity slowed down a lot in the second quarter of 2020. This was true for all three major sectors: office, industrial, and retail. 2020 ended with a strong fourth quarter, indicating early signs of recovery, but fell again in the first three months of 2021. Office, which has traditionally been the most attractive sector for investors, saw GBP 2.12 billion (USD 2.53) in real estate investments, more than one billion less than industrial.

United Kingdom Office Real Estate Industry Overview

The United Kingdom Office Real Estate market is fragmented due to a low level of market share concentration. The industry is highly competitive. The United Kingdom’s office real estate market is extremely attractive to investors, both at the domestic and international levels. Companies are leveraging strategic collaborative initiatives to increase their market share and profitability.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support

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