Caution to commit sees average office lease size fall

Businesses have been holding off making decisions on their office space as they grapple with market volatility, financial instability, and uncertainty around the ideal size for their portfolio.

The pendulum shift to hybrid working has caused many to reassess, and the extent of its impact on larger corporates’ leasing activity is clear.

Caution to commit has seen the average office lease transaction size fall for four consecutive years, from a pre-pandemic high of 2,800 sqm to 1,600 sqm in 2023.

Office leasing transactions above 5,000 sqm in 2023 were down 12% on the five-year average, according to JLL data, while deals for office space of up to 1,000 sqm rose 8%. 

Businesses are cutting costs through portfolio optimization and consolidation efforts. We saw many businesses at the start of the pandemic opt for reductions, in some cases quite significantly, in their real estate footprint. However, in recent months, we’ve seen some of these companies reevaluate their earlier decisions as their portfolios are too small to accommodate a return to the workplace - particularly evident in the likes of Paris and London. 

Furthermore, the decrease in floorplates appears to have stabilized since the second half of 2023, as larger requirements face the pressures of the future development pipeline. Many indicate that a sense of urgency is now necessary to secure the right space.

Decision making lead times are up substantially; many 10,000 sqm deals are taking up to twice as long to complete than the pre-pandemic average. Companies are opting for short-term lease extensions or exploring flexible office solutions, avoiding commitments to large floorplates.

Large transactions have been few and far between, but units of 2,500-5,000 sqm have been in high demand. JLL data clearly underlines this as the size bracket commanding the highest premium and exceeding average transacted rents by 17%, across Europe.

While large deals are anticipated to regain some momentum in the next 12-18 months, with plenty of requirements in the 10,000 sqm+ bracket currently under offer, at the same time, ‘fitted space’ could become more popular, especially for units up to 1,500 sqm.

This is why we feel that landlords need to adapt, offering a more diverse and flexible range of small to medium-sized floorplates, which will require more intensive management.