Financial service providers drive the London office space market

26 Jul, 2006, Frankfurt

Approximately 437,700m² of office space was leased in London over the last six months. According to Cushman & Wakefield (C&W), this means that leasing volumes are 40% higher than in the first half of 2005. In this period, financial service providers had a 39% share in these volumes and were the driving force behind the market (first half of 2005: 22%, first half of 2004: 22%). "The number of leases on the London office space market are considered to be the most significant indicator for the economic climate in Britain’s economic capital overall," say real estate advisers at C&W. "Moreover, the leasing activity in the financial services sector just goes to show that the most recent upheavals on the stock market have not had a negative impact on economic growth."

Public sector leased significantly less office space

Public organisations and authorities, on the other hand, leased significantly less space in London in the first half of this year.
According to C&W, this is primarily due to the "Lyons Report" which was created in 2004 by order of the British Ministry of Finance and which is currently being implemented: To save costs, the report recommends relocating thousands of public sector employees to the outskirts. The report has already left a clear mark on London’s West End, the most expensive office space market in the world: A mere 9% of office space was leased by public organisations and authorities in the past six months – 23% less than two years ago. On average, leases in this tenant sector in Central London have declined from 16% in 2004 and 8% in 2005 to 4% in the first half of this year.

Decline in available office space – Developers encouraged

In addition to demand from the financial services sector, the office space market is also being driven by the decline in office space availability. In London’s West End, 5.7% of office space is currently available for lease – the lowest level since 2001. In the City and Docklands area, this figure is 8.3% – the lowest it has been since 2002.
This shortfall in office space supply has encouraged some developers to construct new property speculatively. This includes three projects in the City, Bow Bells House in EC4, Cheapside in EC2 and Aldersgate Street in EC1, resulting in approximately 70,000m² of new office space. In Central London, a total of 604,000m² of office space is currently in the pipeline and expected to come onto the market in 2008.

Lease prices on the rise

The record lease price of €131.50/gross/m²/month was reached in the first half of the year at 25 Hanover Square, W1, and is thought to be the highest lease price ever to have been paid for office space worldwide.
In the second quarter of 2006, top lease prices in London’s West End rose by 6% to €124.90/gross/m²/month, and in the City, by 10% to €72.30/gross/m²/month.

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