Central London offices: More cause for optimism – Jones Lang LaSalle
Activity in the Central London offices market was subdued during the third quarter, says Jones Lang LaSalle, with 1.6m sq ft let across 88 transactions. Volumes were a third below the quarterly average and this was the lowest Q3 total since 2003. However, the firm sees more cause for optimism given recent announcements relating to the eurozone, and expects occupier confidence to return in the current quarter – although it does caution that the situation in Spain is deteriorating.
On a year-to-date basis, 5.2m sq ft of Central London office space has been let, which is 6% ahead of this point last year. There were 17 deals of more than 50,000 sq ft, compared with only nine during the equivalent period in 2011. But despite the increase in larger transactions, the market remains driven by smaller deals, with 87% of the volumes recorded so far this year at below 25,000 sq ft, Jones Lang LaSalle notes.
The TMT sector has accounted for 21% of leasing activity so far this year, a new record, while the volumes from the banking and finance sector are the lowest since 2003 despite an increase in activity during the third quarter at just 11% of the total vs. a long-term average of 28%.
There was an increase in active demand for offices in Central London during Q3, with 67 new requirements totaling 1.9m sq ft coming to market. “Active requirement volumes have increased by nearly 20% since the equivalent period last year and are now at their highest level since June 2008,” the firm notes. There were 33 requirements seeking more than 100,000 sq ft at the end of the quarter, compared with 28 such requirements at the start of 2012. JLL says the West End offices market has seen the most notable change in this dynamic – it is normally characterised by smaller requirements, but at the end of Q3 there were 11 active requirements seeking more than 100,000 sq ft compared with only five at the start of the year.
The TMT sector accounted for half of all the new requirements registered during the quarter. By contrast occupier demand from the banking and finance sector remained limited. JLL notes the recent CEBR survey estimating that there could be just 255,000 banking staff in Central London if the forecast round of cuts materializes – this is nearly 100,000 fewer than five years ago. It also notes the latest Oxford Economics forecasts, which suggest a slight fall in Financial Services headcount growth with contraction of 0.4% over 2013. The outlook for 2014-2016 is for an average of 0.2% growth per annum. Growth from the Business Services sector is still set to be the main driver with an average of 3.1% growth over the next five years.
Overall supply of Central London office space rose 14% in Q3 to end the quarter at 13.6m sq ft while speculative development decreased quarter-on-quarter. Looking ahead, 3.8m sq ft is due to come online in 2013 with a further 1.4m sq ft in 2014, but beyond this point there is nothing speculative under construction in London, JLL notes.
Prime rents remained stable during Q3 at £55 per sq ft for City offices and £95 per sq ft for West End office space. JLL notes repeated evidence of super-prime rents being achieved in certain assets across London – notably in the sub-10,000 sq ft bracket. The firm expects prime rents to remain stable in Q4 2012 but says some growth is likely in 2013 as pent-up demand starts to transact and brings a further tightening in supply.
