Here’s Where London Office Tenants Are Rapidly Letting Space

London’s office market is continuing its modest post-pandemic recovery, with office leasing volume rising 16% last year over 2021. But some submarkets are picking up pace more than others.

An examination of London’s submarkets shows that areas with new Crossrail stations and new, sustainable office buildings are leading the pack when it comes to take-up with tenants, according to research from real estate analytics firm CoStar, the publisher of LoopNet.

Mark Stansfield, a London-based senior director of market analytics at CoStar, ranked London’s 49 submarkets by examining 2022 leases signed as a percentage of office space (both existing and under construction). He wasn’t surprised to see Paddington, which benefits from both the Crossrail and new office construction, at the top with 12.2%.

Paddington “hasn’t always been as popular with some firms because it lacks the youthful vibe favored by tech and media firms,” Stansfield said. “But new space has been built and has done well with certain types of occupiers. And obviously, the Crossrail station has added to its appeal more recently.”

Just four London office submarkets posted 2022 take-up of at least 6% as a percentage of office stock, indicating growing demand from tenants. Here’s why these neighbourhoods are gaining popularity with office occupiers.

A “satellite” submarket that many insiders feel is disconnected from both Central London and the West End, Paddington is experiencing a bit of a “horseshoe” rebound after first emerging in the 90s and losing popularity in the years leading up to the pandemic, Stansfield said. But one thing Paddington has always had is the perennially popular Paddington station, which is the eastern terminus on the Heathrow Express and now is the western terminus for the Elizabeth Line that opened last year.

The Elizabeth Line is already proving to be a transformative entry into London’s neighbourhoods. Resembling a diagonal across the city, it provides faster connections from east to west (including to and from Heathrow Airport), inspiring developers who anticipate rising demand to build new commercial buildings.

Paddington is enjoying a slew of new office buildings, including Paddington Square, which is fully leased after opening late last year. With 360,000 square feet of office space, Paddington Square is also the largest office building in the neighbourhood.

Other significant leases last year in the neighbourhood include St James’s Place Wealth Management and Cerner signing for a combined 24,000 square feet at Fifty Paddington in the second half of the year, while global services marketplace Bark took the remaining 12,000 square feet at 30 Eastbourne Terrace in December.

The average office rent in Paddington is £64.07 pounds per square foot, according to the latest CoStar data.

Second on Stansfield’s list is Noho, which also benefits from a new Elizabeth Line station (this one at Tottenham Court Road), plus surrounding retail and other amenities. Noho has picked up popularity in recent years, especially among those coveted tech and media firms that drive office demand, Stansfield said. These firms will continue to seek out the newest and best buildings in trendy, well-connected locations such as Noho, he added.

Big leases last year in Noho included Bauer Media Group taking up 58,000 square feet at the Lantern development on Hampstead Road last June. Gerald Eve and the United Talent Agency each took around 30,000 square feet, with the latter at the Oxford House redevelopment on Newman Street.

Noho’s 2022 leasing take-up as a percentage of stock was 6.8%. Noho also featured in the top three of Stansfield’s 2021 index. The average Noho office rent is £65.05 per square foot.

London’s financial centre, City Core North, rounded out the top three neighbourhoods in Stanfield's analysis. Law firm Clifford Chance signed London’s largest office lease of 2022 in the submarket in November, when it pre-let 321,000 square feet at the 2 Aldermanbury Square development. However, this represents a massive downsizing from 700,000 square feet at Clifford Chance’s current headquarters in Canary Wharf. The deal still illustrates the general flight-to-quality trend in London’s office market, though, even in the most established areas.

“The prime, 4 and 5 Star segment of the market was also outperforming the rest of the market before the coronavirus crisis, helped by the availability of ready-to-occupy, high-quality office space falling to a 12-year low in late 2019,” Stansfield wrote in a CoStar market report. “This type of space could continue to outperform across the forecast, too. Firms will likely increasingly pivot to better-quality space to attract talent, welcome clients and fulfill growing ESG requirements, even if taking less space overall as hybrid working becomes entrenched.”

City Core North recorded a 6.6% take-up as a percentage of office stock in 2022. The average office rent in City Core North is £64.13 per square foot.

A prestigious West End submarket, St. James’s reported several smaller leases to drive volume last year, Stansfield said. Notable transactions included BP taking 67,000 square feet at 20 Carlton House Terrace. Take-up tallied 6.4% as a percentage of office stock last year.

A core office submarket, St. James’s was popular with investors during the uncertainty of the pandemic. It was the only Central London submarket to report above-average investment in 2020.

However, due to its established, high average rent of £81.38 per square foot, growth may be subdued, Stansfield said. The office vacancy rate also remains stubbornly high at 6.3%, which is lower than the London average of 7.9%, but still lagging many other submarkets.

There are many factors to consider when looking at London office property. Click here to read more of CoStar’s research on the London market.