Office

What we predicted

1. Take-up of office space in 2022 will return to trend levels due to a release of pent-up demand and employment growth
2. ESG will take centre stage in 2022, with sustainability in particular driving occupier decision making
3. The argument over the office of the future will not be settled in 2022, with occupiers likely to spend the year trying out new occupational strategies
4. Occupiers will develop strategies to tempt employees back to the office so their preference is to work in the office rather than from home
5. Office investment volumes will increase by c.20% in 2022 relative to the previous year, aided by the lifting of most international travel restrictions

What's happened so far

• Provisional data for H1 2022 shows that leasing activity has increased significantly relative to the first half of 2021, with take-up across the UK (Central London, South East and UK cities) likely to be c.50% up year-on-year
• Occupiers’ focus on ESG is evident, especially at the larger end of the market. Issues such as energy efficiency regulations are leading to an increase in demand for new, high-quality space
• Firms’ plans for the return to work has not been fully completed, and in many instances have yet to begin. Office occupancy rates have improved relative to 12 months ago but are still behind pre-Covid levels
• Office investment volumes were high in Q1, particularly in Central London, which saw its most active first quarter on record. Provisional figures show that Q2 2022 is likely to be significantly lower than Q1, but in aggregate, H1 volumes are likely to be c.10% up on H1 2021

What happens next

• The UK economic outlook has deteriorated since the start of the year and as a result sentiment in the office market has weakened
• The weakening of sentiment is likely to persuade some occupiers pause their occupational decision-making, resulting in a slow-down in take-up. However, it is likely that activity will pick up in the final quarter of the year
• Our expectations for 2022 are unchanged - we do not expect office occupation levels to reach a steady state before the end of the year
• Concerns over inflation and rising interest rates could cause office investment activity to slow in Q3; however we expect more investment stock to come to the market before the end of the year which should see investment volumes rise in the final quarter of the year