Low-end offices face glut of demand as start-ups opt for fancy co-working spaces

Office-sharing companies such as Wework are pressing down demand for lower-end offices in London as start ups move into plush new premises.

The proliferation of co-working spaces is creating a “glut” in the secondary office space, research from Deloitte shows.

Companies like Wework are taking some of the best offices in London, and represent about 10 to 12 per cent of the pre-letting market, Mike Cracknell at Deloitte Real Estate said.

“It has supported the take-up of grade A space,” he told City A.M., “the implication of which is seeing more second-hand space available on the market.”

Meanwhile, small businesses, who have in the past have often been forced into cheaper office space, are faced with a wider range of choice.

“The combination of what is possible from a technological perspective, the flexibility of the ways people work, the attractiveness of London and changing requirements mean that people want good office space and employers want good employees. The likes Wework and other co-workers are facilitating that demand,” Cracknell said.

Short-term contracts at co-working spaces are also putting pressure on other landlords to allow tenants more flexibility, Cracknell said.

Deloitte’s London Office Crane Survey found that the amount of office space under construction in London has dropped by 13 per cent, with about half of the capital’s 11.8m sq ft being built in the City.

However, those fearing a slowdown in the market need not worry, the drop is down to a rise in completed projects, not a fall in new ones.

Cracknell said: “Developer sentiment remains positive with above average new construction activity. There is a healthy balance with a strong occupier demand and half of the office space under construction is already committed to.

“Tenants with larger requirements simply cannot afford to wait for speculative schemes to become available. Locking in the right space is often crucial for attracting talent and driving business growth.”