If you’re looking for commercial property in London, the Central London offices sector provides “an impressive degree of resilience, outperforming other property sectors and markets elsewhere in the country”. This confidence should be tempered with the acknowledgment that the commercial property market for London offices “is now showing the strain” under current conditions.
That’s the verdict from Capita Symonds, which has released its latest Central London Office Overview. Examining the third quarter (Q3) of 2011, the UK consultancy firm diagnoses the London commercial property market outlook as ‘mixed’. City of London and West End commercial property markets are revealed as two of the few “to enjoy capital growth and sustained rental levels”, although Central London offices take-up in Q3 is revealed to remain below the long-term quarterly average. This is despite an increase in commercial property availability in Central London, the first since 2009.
The West End commercial property market was down 15% in take-up: 744,000 sq ft in Q3 2011 compared to 873,000 sq ft in Q2. Over the same period, the City of London commercial property market registered a 6% drop from 698,000 to 658,000 sq ft. Commercial property markets in Docklands and the South Bank are said to have “bucked the trend due to one or two large transactions”.
The rental levels for commercial property in London are described as holding firm, with West End rates nudging £100 per sq ft.
Looking ahead, City and West End commercial property markets, particularly prime markets, “are the only property sectors expected to grow” in 2012. Figures showing 49% of all 2011 commercial property investments in London came from sovereign wealth funds, overseas investors, private companies and individuals, representing a perceived “flight to quality” commercial property in London.
A trend for multi-let tenancies rather than single tenants among major new developments of commercial property in London is noted, particularly in the City of London. This is put down to a “direct response to lower levels of demand”. Companies with a major London commercial property presence, such as Santander bank, are said to be “looking to postpone moves” when the need to expand or relocate is less urgent.
This could mean some commercial property developments in London are “put on ice unless there are pre-let deals”, says Capita Symonds. Coupled with “the paucity of the supply pipeline of prime-end stock in the West End” of London, commercial property opportunities in secondary markets are foreseen.
These “offer attractive investment opportunities in the form of well-let investments or multi-let buildings in good locations offering low rents.” However, commercial property investors are cautioned that the rush to prime commercial property risks undermining the recovery in the secondary London commercial property markets. A gap between primary and secondary London markets is predicted, while longer term “there will continue to be good opportunities and investors with the right advice will be able to selectively acquire assets at sensible prices in areas with future growth potential”.
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