4 July 2011
Figures* released by Capita Symonds – part of The Capita
Group Plc – show a second consecutive quarter of low activity in
the central London commercial property market.
Central London office take-up in Q2 2011 was below the historic
quarterly average (since March 1999) of three million sq ft for the
second consecutive quarter. Take-up in the City was at particularly
low ebb - down by 22% over the previous quarter to 605,000 sq ft
and down 36% on the same quarter last year (949,000 sq ft).
Take-up in the West End fared better, but was down on the
previous quarter by 9% to 722,000 sq ft and reflected a 35%
reduction from the level achieved in the same quarter in
2010.
...London inevitably reflects what is happening in the wider world and there is increasing evidence of a slowing world economy. Add the impact of high oil prices and the Eurozone crisis and there is an understandable caution in boardrooms...
Alan Dornford, director - markets, Capita Symonds, said:
“Although it is too early for this to be called a trend,
it is evident that businesses are staying put and the office market
is biding its time. Even allowing for the disruption of the extra
bank holidays, the last quarter has seen fewer transactions and
less space being let.
As a city highly influenced by global trends, London inevitably
reflects what is happening in the wider world and there is
increasing evidence of a slowing world economy. Add the impact of
high oil prices and the Eurozone crisis and there is an
understandable caution in boardrooms. This caution is translating
into a reluctance within businesses to move, invest, or take on new
staff, with direct knock-on effects on the office market.”
The figures come after two years of high activity driven by
business upgrading space and capitalising on inducements on offer
from landlords. As supply has shrunk and landlords have adjusted
their pricing, the options for businesses looking to move have
reduced and the financial case isn’t necessarily as compelling as
it once was. The market is therefore now much more dependent on
growth in the economy – new businesses coming into London and
existing businesses adding more staff.
Investment
Although the short-term outlook for growth looks uncertain,
London’s office market is still perceived as a ‘safe haven’ for
investors. In the last 17 years London’s economy has grown at an
annualised average of 3% while the national UK economy has grown by
an average of 2.2% a year.
Andrew Mercer, director - investment, Capita Symonds, “Landlords
can take heart from figures released by recruitment specialists
Morgan McKinley** which show a reasonably positive employment
picture with over 5,000 job vacancies in the City, far above the
low of 2,000 in January 2009. This is further supported by the very
limited amount of Grade A space in the pipeline - just 1.3 million
sq ft is scheduled for completion in the City in 2011 and 380,000
sq ft in the West End.
There is also currently no office space under construction at
all in several areas including City Fringe and Docklands,
contributing to the historic low of
new space scheduled for completion in London in 2012. In the core
central London markets of City, Midtown and West End just 640,000
sq ft of newly developed space is scheduled to complete in 2012.
This compares with a long run annual average
for development completions of 3.7 million sq ft. Outside this core
the only substantial completion scheduled for 2012 is the Shard
where 586,000 sq ft is available.”
Rental
Rents in the City are currently in the region of £55 per sq ft,
some 4% up since the beginning of the year. Higher rents are also
being achieved in the West End but even there comparatively few
rents have been achieved above £70 per sq ft.
Alan Dornford, Capita Symonds, says: “Talk of
West End rents galloping ahead to £100 per sq ft now looks a little
premature. The two tier market of high demand for Grade A space,
but much weaker demand for other space, will continue to be a key
feature of the central London office market with rents expected to
continue their faltering, but upward, trend until at least 2014
when the supply of new property will begin to cool things
down.”
* For a full
copy of the report click
here
**
www.morganmckinley.co.uk/news/morgan-mckinley-london-employment-monitor-may-11
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