In central London, bets are big on a return to the office

On a recent Monday afternoon, visitors emerging from the serenity of St Paul's Cathedral in the heart of London could walk just a few steps north before being hit by a blast of noise: the neardeafening sounds of a giant hydraulic drill. A few steps farther, sparks flew overhead from another building site.

The City of London, Britain's historic financial district, is awash with construction, the intensity of which is not expected to let up soon.

The City of London Corporation, the district's governing body, has approved 10 new office towers, including one that will exceed the height of all others in the area, known locally as the Square Mile.

Altogether, more than 5 million sq ft of office space is under construction with another 5 million sq ft in the pipeline.

The plans, which will transform the district's skyline, are a huge bet on the future of the workplace after two major shocks to the commercial real estate sector: the Brexit referendum, which sputtered development plans, and the pandemic lockdowns that left the city's streets deserted.

The City's office vacancy rate was 9.5 per cent in the third quarter of 2023, according to research from the real estate services firm JLL, notably higher than the longterm average of 5.7 per cent. But for new builds, the vacancy rate was just 1.4 per cent.

Developers face a "favourable environment" despite economic challenges, including inflation and high interest rates, said Mr Chris Valentine, head of the central London office agency at JLL.

"Much of the existing development pipeline in the City of London is already pre-let, under offer or in negotiation," Mr Valentine said. He added that demand for "best in class" offices, with green credentials and the latest amenities, would continue into the second half of this decade.

The City of London Corporation is basing its growth estimates on a report it commissioned that found that an expected large increase in jobs in the district would support demand for office space, regardless of whether hybrid work remained the norm.