- Central London’s office market – the engine room of the UK economy – has contracted sharply, with a net loss of 14 million sq ft of workspace between 2018 and 2023
- Over half (56%) of all central London offices are ‘secondary’ and do not meet the needs of leading businesses
- Upgrading stock could enhance productivity and deliver £84 bn (GVA) economic boost and value of upgraded assets would exceed £260 bn
- Offices underpin the UK’s service sector economy, which accounts for 84% of jobs and 83% of GVA.
Changes to the planning system to enable the upgrade of central London’s outdated office space could deliver an £84 bn economic boost and unlock £262 bn in investment value, according to a new analysis by the London Property Alliance and Knight Frank.
A new report, Space for Change: Office space dynamics in central London, highlights that between 2018 – 2023 14 million sq ft of office space was lost in London’s Central Activities Zone – the city’s strategically important commercial hub and engine room – an area roughly equivalent to zone 1. This is despite an estimated 11 million sq ft shortfall of space in the capital over the next five years.
Meanwhile, the analysis finds that 54% of office space, spanning 140 million sq ft, is classed as ‘secondary’, offering poor quality workspace that is set to fall below mandatory sustainability standards by 2030 and intervention is needed to prioritise major office development in commercial centres and streamline planning.
The Alliance, which represents the leading developers and investors in central London, has called for offices to be treated as ‘economic infrastructure’ and planning and regulatory processes to be streamlined to unlock the upgrade or redevelopment of older buildings and deliver £84 bn of additional output (GVA) through enhanced office productivity over the next decade.
The refurbishment or redevelopment of older space could also create £11.4 bn in annual rental income and £262 bn of investment value, representing a major opportunity for investors and developers.
James Raynor, Chair of Westminster Property Association and CEO of Grosvenor Property said: “The significant volume of ageing office stock is a threat to future supply unless the barriers to upgrading it to the high-quality, sustainable workspace businesses need are addressed. Working together with flexible, forward-looking planning policies the property sector could unlock economic growth and the benefits that come with it.
If London is to remain a magnet for global enterprise, we must use every lever available to support that ambition, while continuing to target net zero and contribute to local communities.”
Ross Sayers, Chair of City Property Association and Head of Development Management at Landsec, said: “Development viability remains one of the biggest barriers to upgrading or redeveloping secondary buildings. Across the City of London, and the wider central London market, rising construction, labour and finance costs, combined with an expanding range of planning obligations, are creating financial pressures that too often tip the balance against intervention.
“This is a pivotal moment for the public and private sectors to work together on pragmatic solutions that enable central London to meet demand and maintain its position as a world-leading business centre.”
Shabab Qadar, Head of Central London Research at Knight Frank and the report’s author, concludes: “There is a systemic failure in the central London office market where demand for the best space is intensifying, but supply can’t keep pace as office space is repurposed for other uses and planning and regulatory hurdles threaten development viability.
“The case for upgrading or redeveloping the swathes of outdated, older office buildings has never been more compelling for developers, investors and policymakers alike.”
The Alliance is calling on national Government and local authorities across London to protect vital office space and support a strategic programme of refurbishment through the below interventions:
- Major office schemes as critical ‘economic’ infrastructure
National planning policy should class major office schemes in city centres as critical economic infrastructure, ensuring that these projects are given ‘very significant weight’ in planning decisions in recognition of their economic and strategic importance to the UK economy.
- Economic growth as a public benefit
Economic growth, employment, business opportunities, and productivity should be explicitly recognised in planning policy as a public benefit. This acknowledges that creating jobs and supporting businesses is a societal gain in its own right, not merely a by-product of development. It also reinforces the case for office and commercial projects, ensuring that the spaces needed by modern workforces are delivered where they are most required.
- Address delivery barriers to unlock development
The biggest single barrier to intervention is development viability, exacerbated by a complex and challenging planning environment. Planning authorities should reduce and streamline the costs, obligations and regulatory requirements placed on schemes, concentrating on what is genuinely essential for viable delivery.
- Prevent the loss of office space in the CAZ
Without regular monitoring, small, incremental changes such as conversions, long-term vacancies and piecemeal losses can quietly erode London’s economic engine room. Through Authority Monitoring Reports authorities should track total office floorspace to ensure the CAZ keeps enough viable, modern workspace to support jobs, productivity and investment.
- Targeted change of use
Change of use of office space should only be permitted in defined areas. Policy should allow change of use only where there is clear evidence of sustained lack of demand, economic obsolescence, and an assessment showing that retrofitting or redevelopment as an office is not viable compared with alternative uses.
According to the report, the supply-demand dynamics make the upgrade or redevelopment of secondary space urgent and increasingly compelling.
Just over half (56%) of all office space in central London is ‘secondary’, offering low quality workspace, small or uneven floorplates, limited amenities and with an EPC (energy efficiency) rating of C – F, below the mandatory ‘B’ level set to be enforced by 2030. The amount of secondary space is proportionally higher in the key office markets of Westminster (62%) and the City of London (56%) due to the high number of older and listed buildings.
According to the analysis, upgrading this space to prime or Grade A would create investment value of £262 bn and create rental income of £11.4 bn. Offices underpin the UK’s service sector economy, which accounts for 84% of jobs and 83% of GVA. Central London is home to 65% of all office floorspace within London, underlining its position as the business and employment heart of the capital. In the City and Westminster alone office-based jobs contribute over £200 billion in economic output (GVA) per year.
For every 100 office jobs, an additional 40 are supported through supply chains and about 18 through local high street activity.
According to modelling by Knight Frank, upgrading secondary office space to modern standards, reducing vacancy and increasing office-based employment could deliver £83.6 billion in additional economic output in Central London.
Further reading:
Report: Space for Change: Office space dynamics in central London
