RTO trend means London office space is increasingly scarce

During the pandemic, physical offices were largely declared redundant. But in recent years, return-to-office (RTO) mandates have started to cause the pendulum to swing the other way, London businesses can’t get enough offices.

As major employers such as Amazon, Lloyds, and Instagram ordered employees back to work, London companies have followed suit. According to property research from Knight Frank, rents in some of the most desirable locations are skyrocketing, while vacancies for high-quality space could see a major drop in the coming years.

As office spaces rise in demand, smaller businesses are sure to feel the knock-on effects. If the trend continues, maintaining a physical headquarters in the capital may no longer be realistic, or perhaps even necessary. 

Return-to-office policies are driving demand

The ‘WFH vs. RTO’ debate has been a hot topic in recent years. While working fully remote has its pluses, hybrid working has generally emerged as the standard model for many companies. 

That said, larger employers, especially across the tech and finance sectors, lean towards stricter RTO policies, preferring employees to maintain an on-site presence. This shift has reignited the demand for high-end office spaces across central London. 

Knight Frank’s data shows that on average, office rent in the West End has reached an eye-watering £185 per square foot, while spaces in the City go for £100 per square foot, figures which are out of the question for many smaller businesses and startups.

The cost of a London office is rising

Many employees will understandably not be pleased to return to the rush-hour commute, and in response, employers are sweetening the deal by providing premium office spaces that prioritise employee wellbeing with features like on-site gyms and showers.

The Standard reported on one such space, One Leadenhall, which has “a gym, a wellness suite and 17 terraces and green space”, recently leased for around £160 per square foot.

As demand for office spaces rockets, so has the cost to construct new spaces. Which means there’s a growing scarcity for spaces, and while major corporations may be able to afford to pay a premium to win a bidding war, smaller businesses may simply be priced out of the market. 

What this means for small businesses

While office spaces have fallen back into fashion, it doesn’t mean every business needs to pay for a permanent London HQ.

Working in the office as a team offers numerous benefits, but hybrid and flexible working models have also opened doors for companies to combine remote working with occasional in-person collaboration.

Smaller teams, especially, can benefit from opting to use coworking spaces in London instead. These provide desk spaces without the fixed commitment of a long-term lease, in addition to networking opportunities with other professionals.

Other ways to achieve in-person collaboration without a full-time fixed office space might look like:

• Splitting an office with another company, if you only want to use it for part of the week.
• Hosting team away days, or weekends, while working generally fully remotely to benefit from saving office costs, while getting inspiration from an occasional change of scenery.
• Rent a space solely for meetings, so you only pay when collaboration is really necessary.
• Setting up a regional hub outside of the capital, where rents are more accessible, if you want a more full-time physical base.

These approaches allow smaller businesses to collaborate in person while avoiding the soaring costs of full-time office space. For startups in particular, flexible workspace can actually better reflect how teams actually work today, with schedules and collaboration needs that ebb and flow rather than follow rigid office traditions.