Central London occupiers reluctant to commit – Capita Symonds
The decline in take-up in central London office property is starting to look like a trend, says Capita Symonds, as occupiers remain reluctant to commit during the current uncertain economic climate.
The firm’s latest review of the market for available office space in central London notes that Q3 take-up in the City, West End and Midtown areas combined was the fourth in a row to lie below the long-run quarterly average of 2.4m sq ft, slipping to just under 1.8m sq ft in Q3 2011, compared with 3.5m sq ft a year earlier.
Given the limited demand for new space by banking and finance occupiers, the City recorded a 6% decline in take-up to 658,000 sq ft, from 698,000 in the second quarter, and a sharp drop from the 1.9m sq ft taken up in Q3 2010.
Take-up in the West End fell 15% to 744,000 sq ft in Q3 from 873,000 sq ft in Q2, and was also down from the 932,000 sq ft taken up in Q3 2010. Midtown take-up dropped sharply, falling 38% to 385,000 sq ft from 616,000 in Q2 and well below the 694,000 sq ft recorded a year earlier.
Some larger deals boosted take-up on the South Bank and in the Docklands. South Bank take-up jumped 38% to 190,000 sq ft from 138,000 in the previous quarter but was still well below the Q3 2010 level of 239,000 sq ft. The European Medicines Agency deal in the Docklands helped to boost take-up there to 360,000 sq ft from 49,000 sq ft in Q2 and 72,000 sq ft a year ago.
On a 12-month rolling basis, the City is the weakest area, with take-up of 2.9m sq ft compared with 4.2m sq ft in the second quarter. Other parts of the capital saw more modest falls and there was even a small increase in the Docklands, to 1.8m sq ft from 1.5m sq ft.
Capita Symonds says the economic uncertainty has cut demand for large floorplates even in prime areas of the City, with few deals above 75,000 sq ft seen in the past nine months. Some pre-lets of large-floorplate deals are still going ahead “where there is a business imperative for major companies to expand or relocate”, but the firm has seen evidence of other deals being postponed – for example, it cites talk that Santander has put on ice its long-rumoured plans for the Walbrook development.
Companies that are putting off their moves in this environment need to be careful if they are postponing in the hope of benefiting from increased supply in the next few years, the firm says. This supply could be turned off by developers if conditions worsen, it cautions, and the lack of prime supply in the West End is unlikely to change.
While the flight to quality is causing the gap between prime and secondary properties to widen, Capita Symonds feels that there will still be good opportunities within the large, varied secondary market, and says that “investors with the right advice will be able to selectively acquire assets at sensible prices in areas with future growth potential”.
