11 January 2011
Figures* released by Capita Symonds’ real estate division have
revealed that the central London commercial property market began
to recover significantly in 2010, with rental values rocketing and
demand for grade A space far outstripping supply - despite a gloomy
Q4 which ended with a sharp fall in take-up of offices across
central London markets and little movement in rents.
In terms of rental values, there was an overall rise across the
capital in 2010 of 14%. The parts of London with notable rises
include the City, where headline rental values increased by 25%
from £42.50 per sq ft (psf) in December 2009 to £53.00 psf in
December 2010, and Docklands where headline rental values have
soared by 33% from £30.00 psf in December 2009 to £40.00 psf in
December 2010.
City and Docklands rents, which peaked in September 2007 at
£69.50 psf and £50.00 psf respectively, are now back to December
2008 levels.
In 2010, take up rates (including lettings, sales to owner
occupiers and pre-lets) increased across London by 37%. In Q4,
however, take-up rates fell by 41% compared to Q3 reflecting the
dearth of viable new office stock. The problem was particularly
acute in the City where take-up rates fell 74% in Q4 after having
grown by 42% across the year as a whole.
Although the take up of offices across central London fell
sharply in the last quarter of 2010, with rents also stagnating,
prime rents are stable or rising in all sub-markets and investment
volumes have started to increase, driven heavily by overseas
investors.
...The last quarter of 2010 ended with a sharp fall in take-up of offices across central London markets and little movement in rents. But the low key end to the year disguised the fact that 2010 overall has been a year in which central London markets have recovered strongly...
Meanwhile vacancy rates have fallen with an overall drop across
the capital to 8.0% from 9.1% in 2009. In particular, inner London
office availability decreased by 12.5% in 2010 with the largest
percentage decreases being seen in Midtown (26%) and the South Bank
(17%).
With regards to 2011, the marked disparity between high demand
for grade A space, heavily driven by stock shortages, and inertia
in the rest of the market that has been such a feature throughout
2010, is set to continue into this year and beyond. The buoyancy of
the central London office sector also contrasts starkly with the
picture elsewhere in the country - particularly the north - where
little new development is evident and rents generally remain
stagnant.
“The factors propelling the central London market, including the
resurgence of the financial sector and strong interest from
overseas investors, are likely to see the gap widen still further
in 2011, particularly given that demand for office space in other
regions will be more heavily constrained by public sector cuts and
rising unemployment,” says Alan Dornford, director, Capita Symonds’
real estate division.
He continues, “The last quarter of 2010 ended with a sharp fall
in take-up of offices across central London markets and little
movement in rents. But the low key end to the year disguised the
fact that 2010 overall has been a year in which central London
markets have recovered strongly.
...While most office markets will continue to struggle, tenants in the capital will bemoan the lack of available stock and increases in the costs of occupation, although there will be further new development starts, something that is pretty much unheard of elsewhere in the county...
“At the root of this performance is the dwindling stock of grade
A space and a development pipeline which is at an historically low
level. In the city, for example, just 1.3m sq ft is scheduled for
completion in 2011, with nothing beyond that. This year we would
expect to see central London really sitting at odds with the rest
of the UK. While most office markets will continue to struggle,
tenants in the capital will bemoan the lack of available stock and
increases in the costs of occupation, although there will be
further new development starts, something that is pretty much
unheard of elsewhere in the county.”
The fortunes of individual central London markets have also
varied widely during 2010 with the City and Midtown markets
registering a much stronger recovery than the West End.
...The City market has certainly been on a roller coaster ride this year with take up sharply up in the first quarter, falling back in the second quarter, surging again in the third quarter and now falling back in the final quarter to levels last seen at the beginning of 2009...
James Gillett, director, Capita Symonds’ real estate division,
says: “The City market has certainly been on a roller coaster ride
this year with take up sharply up in the first quarter, falling
back in the second quarter, surging again in the third quarter and
now falling back in the final quarter to levels last seen at the
beginning of 2009. However, looking at any one quarter can be
misleading as the picture can be skewed by just one or two big
deals. Overall, take-up during 2010 has been well up on that in
2009 whilst achievable rents, although flat in the final quarter,
have surged by 25% in the course of the year. Capital values, too,
have shown steady growth.
“The West End, meanwhile, has been less volatile but has also
recovered more slowly. The decrease in take-up during the last
quarter was less than that in the City but still 41% lower than the
previous quarter. Nonetheless, take-up overall in 2010 is well up
on that in 2009, albeit that the level of take-up has been
declining consistently throughout the year.”
* For a full copy of the Capita Symonds report
please
click here