Press Release: Flight for quality in offices drives up rents but headwinds on the horizon for London recovery

20 Oct 2022
  • Latest Global Cities Survey shows a mixed economic picture for London against competing cities Paris, Berlin, New York and Hong Kong, but with the capital faring better in foreign direct investment, commercial rents and employment
  • London saw a strong rise in prime office rents in the City and West End markets during Q2, as employers invest in greener, high-quality workspaces to deliver on environmental objectives and retain talent
  • London’s employment levels are tracking 3% higher than 2019. Amongst surveyed world cities, unemployment levels were lowest in London and highest in Berlin. However, London’s unemployment rate is the second highest of any UK region
  • Clouds on the horizon amidst national and global financial uncertainty, rising inflation and climbing interest rates, which could hamper investment, development and disposable incomes, putting London’s recovery at risk

The London Property Alliance has published its fourth quarterly Global Cities Survey. The research, which is undertaken by Centre for London, charts the economic recovery of London, New York, Paris, Berlin and Hong Kong and provides an analysis of the latest data available across 19 economic and societal indices.

The findings reveal that in the second quarter of 2022 (April to June), London moved ahead of its counterparts across a number of key economic indicators.  These include foreign direct investment, office rents and employment. During the quarter, London continued to pick up more investment projects from foreign investors than any of its rival cities.

London’s West End and City markets both saw double digit growth in rents (nominal prices) for grade A office space in Q2 (14.6% and 11.2% respectively). This is despite persistent levels of working from home seen during the same period.  Employers are looking for the best office space and facilities to encourage staff back to the office and attract new talent in a tight labour market. The trend defied expectations as office vacancies in central London rose to their highest level since Q1 2020.  In the latest quarter, Paris and Berlin recorded the lowest surveyed vacancy rates at just 2.8% and 3.2% respectively. Manhattan recorded the highest office vacancy rate in our survey of 21.5% – almost eight times that of Paris’ CBD.

Buoyant employment levels continue to underpin London’s recovery. The number of people in work was 3% higher than in the corresponding period in 2019. This is a stronger position than seen in Paris, Berlin, New York and Hong Kong. Hong Kong’s employment numbers have tumbled since the start of the year and are now the lowest of all.

Alexander Jan, Chief Economic Advisor to London Property Alliance: “In the second quarter of 2022, London continued to show positive trends, leading the UK’s economy in its post-pandemic recovery. The government’s more pro-growth stance should benefit London. The decision to restore tax free shopping by the Chancellor is a positive one that should help central London’s and other city economies to recover.

“At the same time, caution should be noted in the ongoing strength of London’s recovery.  An uncertain political and economic climate leads to increasing challenges for consumers and businesses alike. There are headwinds globally facing London and indeed other world cities. These may well manifest themselves in the results of our next quarterly survey.

“Incentives from employers to attract workers back into the City and Westminster will be key to maintaining momentum. We need to support initiatives such as the City of London’s Destination City campaign and continue to champion the opportunities the Elizabeth line is unlocking for the capital in real time.”

Key findings:

  • Unemployment: London unemployment rate has dropped lower than that for Hong Kong which is historically an outperformer compared to other cities surveyed. Berlin remains the city with the highest unemployment level – a continuation of pre-pandemic trends – while New York unemployment rate has fallen from 17% during the pandemic to 6%.
  • Employment: Employment was 3% higher in London than in 2019; stronger recovery than has been seen in Paris, Berlin, New York and Hong Kong. Between June and July of this year, London also experienced the largest percentage increase in payrolled employees of any UK region.
  • Job vacancies: London along with most other cities surveyed saw job postings remain much higher than pre-pandemic levels. PMI employment data does show that growth is beginning to slow.
  • Office vacancy rates: Commercial vacancies are rising in every city centre market surveyed; central London has seen a small increase.  Vacancies reflect at least in part increased working from home compared to 2019. Some nine out of ten employers are now offering hybrid working options to their employees.
  • Prime office rent: In London rents for prime office stock have continued to rise in both the City and the West End. Grade A office space in London’s West End is experiencing double digit growth in nominal prices year-on-year that reached 14.6% in Q2. Growth rates are slightly lower in the City at 11.5%, reflecting continuing demand for prime office space despite increased levels of working from home.
Read the survey