New London Architecture

Office demand is dropping but industrial space is booming

Thursday 30 July 2020

David Taylor

David Taylor

Editor, NLQ

Office occupiers are taking 10-15 per cent less space than they were before the pandemic struck but industrial demand is seeing some of its best stats ever according to speakers at the NLA webinar on Tuesday morning entitled ‘An agents’ insight: the London recovery’. 

Knight Frank’s Toby Pritchard Davies said that the uptake of space was a reaction to occupiers working from home and adapting to new ways of working. This may change in September when Knight Frank expects the majority of occupiers to return to the office. Commercial, said Pritchard Davies, has seen some casualties in terms of transactions with Salesforce and Amazon no longer proceeding. Although the market is still ‘relatively fragile’, there are nevertheless ‘green shoots’. The market is showing an ‘acute shortage of supply’, albeit on strong fundamentals, and there was a consequent prediction of rental growth. ‘We are confident of the market going forward and it is robust enough to be able to ride this out’, Pritchard Davies said. ‘There will be a flight to quality from occupiers as there is a focus on health and safety and the importance of hygiene and staff satisfaction’. 

Savills’ Bridget Outtrim was bullish about the industrial market. ‘Arguably we’ve been having the times of our lives during the lockdown’, Outtrim said, pointing to ‘phenomenal growth’ from a ‘huge surge’ in online deliveries. ‘We’ve had the strongest half-year of take-up that we’ve actually ever recorded in the industrial market’, she added. ‘We’ve never seen anything like it before’. Examples include Amazon signing a pre-let for a new fulfilment centre of 2.3 million square feet, with others including Hermes and DPD also showing their ‘huge requirements’ for new sites and small depots. End users like DFS and Primark, moreover, were taking temporary space, although areas like air freight were less successful, and mixed-use schemes concentrated on the tiny sector of ‘maker spaces’ too much, she added. These are the ‘fluffy’ terms used to describe workshops that don’t sound too industrial, she added and represents the wrong kind of industrial space for London. As a result of leaving the European Union, however, there has been a surge of requirements from European-based logistics providers who feel they now need to have a base in the UK. ‘We’re very optimistic about the future because the industrial sector supports modern life’.

Residential, according to JLL’s Simon Hodson is not out of the woods yet when it comes to COVID, and there had been significantly reduced volumes of transactions, showing a softening in demand before an expected ‘significant economic scarring’, even if there is structural demand for housing based on historic under-supply and an increasing population. Only a third of the mayor’s housing targets are being met at best ‘and this looks particularly challenging’, said Hodson. But schemes like Meridian Water in Enfield represent a real opportunity to create new communities’ and working from home will likely become more of a new normal, certainly for two days a week on average, owing mainly to perhaps getting used to other family commitments or revised work/life balances. Nearly 50% of those JLL surveyed want to move within the next two years, and 42% are looking to move from the central area, with new priorities including outside space, broadband, and now private workspace, with big implications for housing design.

And finally, the retail picture was provided by Avison Young’s James Burt. This has been hard hit by online sales having increased by a ‘whopping’ 53 per cent, from 20 per cent in February, clothing sales are down by a third, and the UK’s retail index is down too, compounded by the public’s concerns about safety, their own jobs, and difficulties over public transport. Consumer confidence is now at -27 compared to February’s -7. But the growth of localism has been good news for town centres, many of which are now ‘thriving’, compared to the shopping centres, which will take longer to come back. We will likely see increasingly flexible leases, and the government loosening planning laws will also help expedite retail spaces being ‘pruned’. ‘We believe that recovering London will come from the outside inwards, led by entrepreneurial, independent retailers and hospitality operators as consumers get more confident going out’, said Burt. But the positive prognosis comes from Europe, said Burt, where trading in one British firm is now at close to pre-COVID levels, and steady recovery is giving ‘cause for optimism’.

Further discussion points included the trend of occupiers locating around transport nodes to minimise their staff’s travel; a significant increase in searches for residential property outside London and desire for High Street ‘work hubs’, leaving the office for collaboration; the problems for co-working as a sub-sector; concerns about second waves and future lockdowns; PDR; ageing populations and the need to reappraise intergenerational housing, with those resizing and downsizing ‘bumping into people trying to get on the housing ladder’.

Full event details here.
Webinar recording here.


David Taylor

David Taylor

Editor, NLQ


Work

#NLAWork


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