Few Signs of Investor or Occupier Demand faltering in London Office Market

Posted on 25 August, 2015 by Neil Bird

The central London office market remains buoyant with few signs of either investor or occupier demand faltering in the near future.

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According to the latest market research from Cushman & Wakefield, investment volumes during Q2 stood at £4.4 billion, taking the total for the first half of the year to £9.1 billion – the highest first half total since 2007.

The research found that domestic investors were more active in Q2, accounting for 50 per cent of all transactions, the highest proportion for nearly four years.

With opportunities to acquire core assets diminishing, investors are increasingly moving up the risk curve and seeking opportunities in non-core locations. They are also placing an increasing emphasis on short term income, with almost a third of all properties purchased in Q2 having unexpired lease terms of less than five years.

Take-up in the West End market totalled over 1 million sq ft in Q2, bringing the total volume for the first half of the year to 1.8 million sq ft, on par with the first half of 2014. Supply diminished further during the period, with just 2.6 million sq ft currently available, representing a vacancy rate of 2.5 per cent, the lowest level since 2000/2001.

The occupational market continued its surge in the City and East London too, with leasing volumes hitting 2.8 million sq ft – a 17 per cent increase on the total recorded in Q2 2014. Take-up was particularly strong in East London, where supply levels are now at their lowest for 2.5 years.

The vacancy rate in the City and East London currently stands at 6.6 per cent, while In Canary Wharf vacancy rates have fallen from double-digit figures in the summer of 2014 to a vacancy rate of 5.5 per cent.

Prime West End rents rose to £125 per sq ft in Q2 – reflecting annual growth of 8.7 per cent. There was also strong rental growth recorded across all sub markets during Q2. In Mayfair rental levels now average £125 per sq ft, a year-on-year increase of 8.7 per cent.

The City Core and City Outer Core recorded figures of £64.50 per sq ft and £53.50 per sq ft respectively, representing increases of 10.3 per cent and 9.2 per cent.

In Victoria rents stand at £77.50 per sq ft (up 3.3 per cent) in Midtown the figure is £63.50 per sq ft (10.4 per cent), while in Paddington the figure is £60 per sq ft, representing rental growth of 4.3 per cent.

With both investor sentiment and business confidence high, there seems to be no reason to believe that the market will falter in the short term, although some analysts are beginning to ask if we may be approaching the top of the cycle.




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