Silicon London boosts offices take-up – Knight Frank
Knight Frank’s annual Central London breakfast, held earlier this week, suggests that ‘Silicon London’ may be gaining in popularity. While take-up of Central London office space fell 27% in 2011, to 10.7m sq ft, demand from the technology sector doubled last year, to 1.3m sq ft.
Major tech companies operating in London include Apple, Expedia, Facebook, Google, Groupon, Nokia, O2 and Lastminute.com, the firm noted. The upturn in demand from the tech sector was in marked contrast to the slowing of take-up from other industries – particularly finance. And the rising requirements from tech firms could be seen across London, not just in the Shoreditch/Old Street roundabout area. There were concentrations of tech-sector deals in Clerkenwell, Farringdon, Covent Garden, Fitzrovia and the Southbank, Knight Frank added.
The firm said a fall in supply – availability of office space in Central London fell by 1.5m sq ft in 2011, to 16.8m sq ft – and the jump in demand from tech companies “provides reason to have confidence in the long-term outlook”. Knight Frank noted that supply in Central London peaked in 2009, at 23m sq ft of available office space.
The breakfast presentation also noted that prime rents for office space in the West End rose 8.8% during 2011 to end the year at £92.50 per sq ft, while prime rents for City offices were flat year-on-year at £55.00 per sq ft. Prime investment yields were steady in 2011 at 4.0% for the West End and 5.25% for the City. Of the £9.1bn transacted in offices last year, 60% involved overseas buyers, the firm noted.
James Roberts, head of commercial research at Knight Frank, believes that demand for office space in Central London could pick up once more by the summer, if the recent rally in equity markets continued, while the upside from the technology sector would give added confidence. “If office demand from tech firms doubles during an economic slowdown, it will be interesting to see what happens when growth improves,” he added.
The supply of London offices for sale and to let is expected to continue to shrink this year and next, if demand remains around the same as 2011 levels, according to leasing partner Tim Robinson. He notes that the current pipeline of development completions for 2012 and 2013 is less than the level of take-up for new-build space seen in 2011. Mr. Robinson expects rents to remain level for most of this year: while they may start to rise in the final quarter of 2012, he thinks they will definitely increase in 2013.
