There are early signs that London’s office market is on its way to recovery according to newly released data from Cushman & Wakefield with the total amount of space going under offer increasing month-on-month and Q4 investment deals on course to exceed Q1-3 volumes.
London’s Occupational Market Demonstrates Confidence Beyond the Pandemic
Cushman & Wakefield data shows that the total amount of space under offer across London has increased for the third consecutive month, with Q4 figures expected to reach 2.7 million sq ft (MSF). The rate of new space being committed to has also increased; since August occupiers have placed over 1.2 MSF under offer, enough space to fill the recently completed 22 Bishopsgate skyscraper.
Preliminary figures from Cushman & Wakefield reveal that businesses acquired in excess of 4.5 MSF of office space across Central London during 2020, which as expected was lower than the long-term average. Nonetheless, occupiers continued to focus on upgrading their real estate, with 62% of take-up being for newly built or refurbished stock.
Pre-letting continued to play an important role in the London leasing market, accounting for around 30% of total take-up across the year as occupiers are forced to look further ahead to secure the building they require. Seven of the top 10 leasing transactions signed during 2020 were for pre-let schemes. A diverse profile of occupiers committed to pre-let space in 2020, from law firm Linklaters, to energy company BP and media giants IPG Mediabrands.
Alistair Brown, Head of London Markets at Cushman & Wakefield, said: “We have noticed an uptick in enquires since September as occupiers start to re-enter the market. The positive news about the potential COVID-19 vaccine will further boost occupier confidence. Office pre-let discussions are moving at pace with over 1.3 million sq ft currently under negotiation across London. These long-term commitments to London will lead post-COVID take-up.”
Due to the limited level of overall take-up, availability has been rising throughout the year. Cushman & Wakefield estimates that year-end availability will be around 18 million sq ft, reflecting a vacancy rate of 6.5%. The rise in availability has been fuelled by the release of space by tenants. However, the availability of new quality Grade A space remains relatively tight which will help to support prime rents.
The office development pipeline remains constricted with over 50% of space under construction and due to be delivered in 2021 already accounted for.
London’s Investment Market Continues to Demonstrate Value
Cushman & Wakefield forecasts final quarter volumes for Central London to reach just over £4 billion, of which £3.3 billion is from deals that have already completed since October.
Cushman & Wakefield is therefore predicting investment volumes for London to be in the region of £8 billion for the whole of 2020 (with Q1-3 volumes totalling £3.9 billion). This compares to £12.3 billion for 2019 (35% fall) and £19.1 billion for 2018 (58% fall).
Martin Lay, Co-Head of London Capital Markets, at Cushman & Wakefield, said: “We expect to see a strong finish to 2020, with around £4 billion transacting across Central London in the final quarter of the year. This will equal the combined volumes seen across the whole of the first nine months of the year. While European investors were the most active in the first three quarters of the year, interest from far eastern investors has driven activity in the final quarter. With prime yields in London showing the highest discount to those on the continent for over a decade, we expect this wave of capital to continue into 2021, supported by the future easing of travel restrictions.”
