Affordable workspace policies are becoming increasingly common throughout London, and they are here to stay.
According to latest estimates, London needs to deliver 6.9 million new jobs, and up to 6.1 million sqm of new office floorspace by 2041 to meet demand. This will build on the growth of London’s commercial property market, which has seen commercial values and rents continue to increase in recent years.
This growth has also posed affordability issues, where rising rents have seen a number of smaller local businesses squeezed out and new businesses unable to get a foothold in central London.
Planning policy is now playing catch up, with affordable workspace policies being adopted or being brought forward in several London local plans. Inspectors have also found that the new London Plan’s affordable workspace Policy E3 to be sound and have encouraged local authorities to use affordable workspace policies where necessary.
With the Mayor’s backing, new affordable workspace policies are here to stay and will have implications for commercial developers, landowners and occupiers.
Affordable workspace is generally described as business floorspace provided at rents maintained below the market rent for certain occupiers such as startups and SMEs.
Hackney Council, for example, is one of several London authorities bringing forward new affordable workspace policies as part of their new local plans. Hackney’s policy would apply to all commercial developments delivering 1,000 sqm or more of business floorspace, 10% of which must be offered up at a discounted market rent. In Shoreditch, rents on the affordable floorspace will be capped at 40% of market rents and elsewhere in the borough rents will be capped at 60%.
It is clear that these blanket emerging policies are designed to apply to new major commercial and mixed use developments. However, they could have significant implications for the renewal of older office stock in central London. For example, with the policies applying to gross floorspace, any refurbishment to an office building that is 1,000 sqm or greater, and requires planning permission, could technically trigger the need to provide 10% floorspace as affordable workspace.
This would have major viability implications and could disincentivise landowners from investing and modernising their existing buildings. On a larger scale, London may not meet its projected demand for new office floorspace and jobs.
Whilst we can all agree with the intent behind affordable workspace policies, they are in their infancy and it will be interesting to see how they operate in practice over the coming years.
Should you wish to discuss emerging affordable workspace policies in London, please get in touch.