London needs more office space to remain Europe’s HQ
Offices are integral to London’s offer as a global city, but cost pressures and green regulations are strangling the development pipeline, says Paul Williams
We all want the UK to succeed, we all want communities across the UK to thrive – and growth in London is essential for the UK as a whole to prosper.
But what will help drive growth in London, and what could hinder it? London is a truly global city and is the HQ capital of Europe for countries from all over the globe. It benefits from world class infrastructure which extends beyond the physical through to the knowledge economy. It has broad appeal to companies from a global range of sectors, unlike other cities. At the last count, research estimates that there are nearly half a million British people working for US companies in London and even more Americans working for British companies. We all know how important investment in homes and infrastructure is to support growth, however, if we don’t invest in offices and London’s vibrant and innovative streetscape, it could be a step towards us losing our leading global position.
At a time of economic uncertainty, the Chancellor’s decision to “back the builders, not the blockers” is vital for London to maintain its pre-eminent global position. Alongside the proposed changes to unlock the planning system, the new £600m investment to train up to 60,000 skilled construction workers will help to address the critical skills shortage which is adding additional constraint and cost pressures in an already tight development market.
Offices remain integral to what we can provide in our cities. Across London, the rapid increase in the cost of capital alongside disruption within the planning environment has exacerbated the challenges posed by the green transition local authorities are rightly pressing ahead with. This has led to a marked reduction in the office development pipeline across London putting further pressure on businesses – large and small, domestic and international – planning their future occupational requirements. London has a supply crunch.
Active demand for new office space of 12.8m sq ft is nearly 70 per cent above the long-term average. Companies with larger HQ requirements are having to look earlier or risk compromise
Active demand for new office space of 12.8m sq ft is nearly 70 per cent above the long-term average. Companies with larger HQ requirements are having to look earlier or risk compromise. As well as the focus on reducing carbon emissions from development, occupiers want the greenest space to support them on their journey to net zero. Businesses want high quality, amenity-rich, low carbon space in really well-connected locations. With Covid in the rear-view mirror, offices are today a strategic asset for employers, attracting talent, and a hallmark of in-person collaboration to drive performance in competitive markets.
Space is not enough
Delivering great space is no longer enough. For London to maintain and strengthen its position, our industry and all those stakeholders helping to shape London’s future need to understand that commercial occupiers and businesses have expectations that extend beyond the space they lease. A vibrant and innovative streetscape, cultural drivers such as new theatres, running tracks and restaurants. Bosses of companies are engaging with our industry like they have never done before as requirements continue to change.
A successful London attracts overseas investment in many different formats: more international businesses co-locating their European HQs alongside their supply chain and peers; venture capital looking to invest in the next big idea; other capital providers financing the winning players of tomorrow. And that in turn, will bring success for the UK as a whole.
It will also lead to further internationalisation of the ownership base of London offices, freeing up capital for developers to invest in ongoing regeneration, creating a positive feedback loop and supporting local communities while helping to drive growth.
But for all this to happen, we need to become ‘a nation of builders’ reinforcing London’s world-leading position and supporting responsible economic growth for many years to come.
Paul Williams is CEO of Derwent London