The professional sector is one of the largest business sectors that occupy office space across central London. It includes businesses from the world of accountancy, consultancy, recruitment, research, surveyors and architects to name just the main ones. The professional sector comprises some of the largest global brands and employs approximately 16% of the London workforce. Although returning significant volumes of take-up each year, leasing activity for this sector has been below the long-term annual average since 2014. The total leased by professional sector firms across Q1-Q3 2019 is 772,000 sq ft, down marginally by 4% on the same period in 2018. Despite this, it is still at least a third off the annual average total. Are we now seeing a new normal for the sector and volume of leasing?
Through 2010-14 there was a consistent and robust level of letting activity from professional firms. During this period all of the big four accountancy firms were active, and a number of the larger surveyor practices were also taking sizeable chunks of office space on long leases. The average deal size was 9,100 sq ft across these years, whereas in Q3 2019 the average deal size transacted was 3,450 sq ft. We are a few years off until we start to see some of those leases expire and new requirements launched. However, the past 10 years has seen significant changes in the way these firms work, being at the forefront of adopting new technologies, different types of jobs, agile working practices and new locations - all of which have impacted the office footprint that is needed for the modern workplace.
The City and West End continue to be the location of choice for the sector, accounting for 43% and 28% of take-up in Q3 2019 respectively. The figures are significantly above the long-term average for these markets, in particular the City where the average is just 34%. Areas such as the Southbank and Midtown which have in recent years have seen the professional sector take substantial volumes of office space, are now slipping behind the average. Limited supply and suitable stock available in these markets are forcing firms, not just professional to look elsewhere. This has also been noticeable in the grade of space that has been leased. Historically close to half of all space leased was of Grade A quality or space that was pre-let, in 2019 it was down to 37%.
Whilst the size of deals has reduced in 2019, the number of businesses taking space have kept a pace with the long-term average. Already this year 141 deals have been transacted, 4% above the average and only 28 deals short of the 2018 total, which was the highest number since 2013 (169). This level of letting does not point to a slowdown from this sector but does highlight that requirements for space have changed in recent years and the size of companies may well have changed too.
The outlook for the sector seems as though we could expect more of the the same, suggesting that new normal. However, those firms who back in the early-mid 2000’s took large tranches of space, could well be looking for their next generation workplace in the coming years.