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Education Activity in the UK Office Leasing Market

The office market is evolving. While take-up volumes in 2023 across the Big Five and Central London office markets were in line with the five-year annual average, they were 25% down on the pre-Covid five-year average from 2015 to 2019. The downturn has not been universal, however. Activity around Grade A office space has actually increased by 21% against the five-year annual average in 2023 across the Big Five and Central London. This amounted to a record high of 66% of the overall take-up volume, reflecting occupiers’ increased preference for high quality accommodation.  

The sources of demand are also changing. One particular area that has emerged with renewed vigour is the education sector including both universities and other training institutions. 

In 2023, the Big Five and Central London office markets reported the highest transaction volumes and counts on record for the education sector, with a combined total of 722,446 sq ft transacted across 40 deals. This amounted to 5.5% of the overall annual take-up volume (rising to 8.7% in the Big Five) and 3.0% of the total transaction count – also both record highs for the sector. These strong figures have rebounded from the 2019 low point, with four consecutive years of increased leasing volumes subsequently. 

Activity has been driven primarily by universities expanding within their own cities, with additional demand from UK universities opening branch facilities and campuses in London as well as some leasing by international universities. 

The preference for Grade A space seen across the wider market – accounting for 68% of total take-up activity in 2023 – is also evident in the education sector, with 73% of take-up being Grade A quality. 

The education sector has bucked the trend of declining office lease sizes in the post-Covid period. Education occupiers averaged 18,061 sq ft per lease in 2023 – 84% above the 9,833 sq ft averaged across all transactions. Education deals were proportionally even larger in the regions, more than doubling the average transaction size of 4,901 sq ft at 11,966 sq ft. In fact, three of the top five largest leases of 2023 across the Big Five were enacted by the education sector, rising to four of the top ten. Interestingly, the top five educational deals were all enacted by either private or international education providers, demonstrating the increasing diversity in the market. 

TOP FIVE EDUCATION DEALS ACROSS THE BIG FIVE AND CENTRAL LONDON 2023

There are multiple factors contributing to this recent uptick in activity. Increasing student numbers across the UK from both domestic and international demand has led to universities expanding. Private providers have entered the market and provide a means of diversifying away from the traditional universities. The additional fees that can be derived from international students is often a particular source of motivation. 

Central London receives the majority of UK university branch campus activity, however demand in the capital is mainly attributed to inner London-based universities as well as some demand from international universities. There are also several examples of these institutions relocating their supporting office staff into city centre locations to help free up valuable space on campus to increase student capacity in Central London and across the national office markets.  

Alternative providers of higher education are also on the rise in terms of leasing activity. As well as providing mainstream full-time undergraduate university programmes, these operators are also capable of offering professional qualifications and part-time reskilling opportunities. Prior to the pandemic, alternative providers accounted for 35% of take-up per annum, averaged between 2017 and 2019. Post-pandemic, from 2021 to 2023, this proportion has risen to 57% with 2023 reporting a record 74% share of overall education take-up as well as these alternative providers claiming the top deals by volume. 

However, there are also downside risks to consider for the education sector. Uncertainties exist in the international market relating to visa and affordability issues as well as a projected peak in global populations expected in the 2030s, bringing with it a probable peak to student numbers. So far, the UK has remained resilient, but the headwinds are challenging. These risks, combined with the financial pressures facing many institutions – stoked in universities by the freeze on tuition fees – mean that significant investment projects are difficult to embark upon including leasing more space. 

Nonetheless, the education sector has proved to be a strong source of alternative demand for some landlords and developers, offering another component into a mixed-use asset or development with diversity providing some insulation against demand shocks. Strong institutions act as anchor tenants, helping to attract and form a wider ecosystem around them – particularly for innovation-focused sectors such as life sciences – as well as providing placemaking credentials and a community of students and staff contributing to the economic wellbeing of the area they inhabit.  

As such, the trend in educational take-up of leases is seen as beneficial in defining the future of cities and mixed-use. This has been recognised by Tower Hamlets where Canary Wharf has been awarded with significant educational floorspace allocations within the Borough’s Draft New Local Plan November 2023. 

Sheffield Hallam University at Plot 1, Brent Cross TownAnother strong example of this is Sheffield Hallam University working with Related Argent to set up their first satellite campus, in a 2022 deal advised by Cushman & Wakefield. Scheduled to open in autumn 2026 with plans to welcome 5,000 students by 2030, this landmark deal will be a strong component of the 3 million sq ft Brent Cross Town development and will see the university reach beyond its Sheffield home. Once operational, the new campus will act as a key anchor feature of the evolved local ecosystem, leveraging this placemaking opportunity for the benefit of both the academic institution and the wider development. 

With significant acquisitive activity already in 2024, there is certainly a small but expanding place for the education sector within the changing office landscape.