London office market indicators remained positive in Q3 2019 with little indication of any slowing in demand from occupiers or investors, according to Cushman & Wakefield.
Office take-up exceeded 3 million sq ft for the second consecutive quarter taking leasing activity for the last 12 months to 12 million sq ft, above the 5-year average of 11.7 million sq ft. There were three transactions in excess of 100,000 sq ft; all three of which were pre-lets of development space completing from mid-2020. The City market saw particularly strong occupier activity, recording 2 million sq ft of take-up, the highest third-quarter since 2014. There is a further 2.2 million sq ft under offer in this market, which will support leasing levels in the final quarter of 2019.
Central London office availability remained relatively stable; supply is now 12.9 million sq ft, 6% below the 10-year average. The availability of new and refurbished space remains thin; in the West End the vacancy rate for new and refurbished space is just 1.75%, the lowest since 2015.
Accordingly, the prime rent in the City has risen from £68.00 per sq ft to £69.50 per sq ft with further growth forecast in the final quarter of the year. In the West End, the prime rent remained stable at £110.000 sq ft, although growth is expected next year, as occupational supply continues to tighten.
Alistair Brown, Head of London Markets at Cushman & Wakefield, said: “London’s leasing markets continued to be resilient in the third quarter, despite the increased uncertainty over the outcome of Brexit negotiations. There is healthy demand across all business sectors for London offices; the top ten leasing transactions by size included acquisitions by financial, legal, technology, and flexible workspace companies.”
Patrick Scanlon, Head of UK Offices Insight at Cushman & Wakefield, said: “Strong pre-letting activity in the third quarter continued to take supply from the development pipeline. Even if geopolitical uncertainty increases, this erosion of the speculative pipeline will place further upward pressure on prime headline rents as larger tenants find their options limited.”
An acute lack of available investment stock constrained purchasing activity in the third quarter. Investment turnover in the third quarter totalled £2.5 billion, 55% below the £5.6 billion of sales recorded in the corresponding quarter last year.
Domestic investors replaced those from North America as the most active purchasers in Central London in the third quarter, accounting for 40% of all acquisitions. The prime yield remained stable in the City and West End at 4.25% and 3.75% respectively.
Martin Lay, Co-head of London Capital Markets at Cushman & Wakefield, said: “Whilst investment activity is continuing to be frustrated by the persistent lack of available opportunities, the wall of global capital looking to invest in London continues to build. London is increasingly looking good value compared with the other major global markets and as a result we are experiencing strong levels of competition on our current sales.”
