In 2017, businesses have acquired 14% more office space in Central London than in the 12 months prior to the referendum, according to the latest research from global property advisor Knight Frank.
Quarter 3 (Q3) has recorded the highest level of office take-up so far in 2017. With 3.8m sq ft of office space in Central London currently under offer and due to close by year-end, 2017 is expected to have its strongest final quarter since 2014.
Office take-up in the West End in Q3 2017 reached 1.65m sq ft, 43% above the long-term average, which is coupled with the highest levels of recorded active demand since 2006.
The City has seen take-up for Q3 2017 total 1.6m sq ft, up 33% on the same quarter in 2016. The City core has seen a healthy growth in take-up at 37%, totalling 860,000 sq ft, the highest level since Q4 2016.
Take-up in Docklands during Q3 totalled just less than 248,000 sq ft, with the majority of demand transacting in Stratford, accounting for 95% of the take-up during the quarter.
In parallel to the increased levels of take-up, the development pipeline has slowed. There is 4.4m sq ft under construction speculatively and due for delivery in 2018/19. This is roughly equivalent to a single year’s take up of new and refurbished space, and significantly below the 5.6m sq ft leased in the past 12 months.
In the investment market, prime yields have remained stable in both the City and West End as demand remains strong. The Central London property market has seen significant investment, with turnover in the City totalling £2.8 billion during Q3. This is a substantial increase of 56% above the long-term average, witnessed across 31 deals. Overseas investors account for 92% of purchases by volume at a Central London level.
The increased levels of take-up, especially for units over 50,000 sq ft, is leading to increasing pressure on the development pipeline, with companies increasingly forward committing to schemes ahead of their delivery. Since 2007, nearly 63% of deals over 50,000 sq ft have been of new and refurbished stock, maintaining the pressure on development.
Stephen Clifton, Head of Central London Offices, Knight Frank, commented: “The figures show, that despite the perceived uncertainty surrounding Brexit, London is still a pre-eminent city, with strong evidence that business confidence is in fact more solid than sentiment expressed in the press may suggest. The performance of the leasing market during 2017 has strengthened our outlook of the market’s performance. Occupiers are continuing to commit to London to satisfy their requirements and London also remains the destination of choice for overseas capital as the currency advantage and the capital’s safe-haven status continues to draw investors.”
Patrick Scanlon, Head of Central London Research, Knight Frank, commented: “Although we are yet to see the full implications of Brexit, to date we haven’t seen the number of occupier requirements fall away as many had predicted. However, with 42% of deals for larger units being transacted either before or during construction, occupiers are activating searches earlier to maximise the opportunity of securing suitable premises. And with downward pressure on supply, businesses will continue to broaden their search criteria.”
