Occupier demand for office space in the City of London has reached its highest level since 2000 as firms from outside the financial services sector compete for space in the Square Mile.
Office take-up in the City in the last quarter of this year increased from 2.2 m sqft in Q2 to 3.0 m sqft in Q3, a rise of 39 per cent. This has included large deals for firms such as Amazon, and London Business School.
Demand for office space has not been above 3.0 m sqft since Q3 2000, and, at this level, is nearly double the long-term average of 1.7 m sq ft.
Dan Gaunt, head of City Agency at Knight Frank, observed: “I see this as evidence of the Manhattan-isation of the City office market, where finance is now one of several sources of office demand now the square mile’s economy has drawn in a variety of new industries, as is the case in New York’s key office markets.
Based on nine months data in the year so far, the City has seen 6.9 m sqft of office space acquired, compared to 5.8 m sqft for the whole of 2012.
Occupier demand has come from a variety of industries, including those that in the past were not associated with the City, as shown by large pre-lets by Amazon at Principal Place (431,000 sqft) and M & G Investments (330,000 sqft) at 10 Fenchurch Avenue. Amazon also took 86,000 sqft at Leadenhall Court, while London Business School acquired 88,000 sqft at 40 Tower Hill.
Bradley Baker, head of central London tenant representation at Knight Frank, commented: “Occupier confidence has strengthened recently which has translated into increased market activity. We expect this to continue into 2015 as well advised businesses look to secure high quality space ahead of anticipated rental growth”
Supply of offices in the City fell during Q3, now totalling 8.7 m sqft, which is well below its financial crisis peak of 13.4 m sqft in Q2 2009. This represents a current vacancy rate of 7.3%, the lowest level since Q3 2007 (around the time queues were found outside branches of Northern Rock bank at the start of the last downturn) and below the long-term average of 9.2%.
“City landlords face the challenge of delivering an environment where both a corporate law firm and a technology company may be sharing the same office building, with issues of ensuring branding and the décor of common areas are acceptable to two very different tenants,” explained Dan Gaunt. “Equally, the two tenants may in the future converge in their attitudes to offices and indeed corporate appearances. “
