Hanover Green’s 2023 office market forecast

As we dive into 2023, the Hanover Green team assesses how the central London and South East office market is likely to perform throughout the year ahead, and the trends that will define both the agency and investment markets:

Central London and South East occupational market:

• Quality stock will remain limited and occupiers – both large and small – will compete for the best-in-class stock, with rent not seen as a barrier to securing this. The focus will be on locations where occupiers can recruit and retain the best staff. This demand will especially be the case for small, fully fitted suites.
• Landlords delivering the right product with a simple and flexible leasing strategy will benefit the most.
• Secondary space will struggle to let, due to the continued flight to quality.
• Continued market uncertainty will lead to reduced demand for space and overall take-up levels.
• Lease flexibility will be key as occupiers ‘suck it and see’ how to use space post-pandemic.
• ESG will become even more important as a leasing consideration and will drive occupier decision making. Buildings with EPC C and below will lose out.
• Across the South East, increased refurb/build costs linked to enhanced ESG provision and inflated construction costs will result in a limited number of locations being able to justify speculative development even in markets where supply is tight. This will lead to increased obsolescence.
• The core, well-located lab markets across the South East will continue to perform well due to supply shortages.

Investment market:

• The year will get off to a slow start with limited volumes in the first half as valuation catchup continues.
• ESG will be critical – buildings will either need to be ESG-compliant already or have a sensible route to being so to be seen as attractive.
• Secondary assets with limited alternative use will struggle to sell.
• Buyers will be focused on quality of income and the residual of buildings.
• Central London will remain dominant in the eyes of both international and domestic capital.
• There will be an aversion to major capex and development, as rising costs in many cases make it unviable outside of Zone 1 in London.
• Operational real estate will retain significant demand, with a focus on senior living/care, build-to-rent and the student sectors.

Get in touch with the Hanover Green office agency and investment teams today to talk about your occupational or investment plans for 2023.