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Highest Take-Up In City Of London Office Property Market For Five Years
11 Jan, 2011, London
Total take-up in London’s City and Docklands office market for 2010 reached 7.6m sq ft, for the first time in five years, according to Cushman & Wakefield. This figure exceeds that of 2008 (6.6 m sq ft) and 2009 (4.6 m sq ft), giving encouragement to developers to push ahead with schemes over the next year.
Underlying active demand is still muted, but as occupiers become more confident about the economic recovery, this is expected to pick up in 2011. The total take-up figure has been skewed by several major transactions in recent months, namely JP Morgan taking 1m sq ft at 25 Bank Street, UBS signing for 700,000 sq ft at 5 Broadgate and Bloomberg taking 500,000 sq ft at Walbrook Square.
Three major City buildings over 100,000 sq ft are due to be delivered in 2011: The Heron Tower, Cannon Place and 200 Aldersgate Street. Total speculative space under construction in the City at present is around 3.0 m sq ft. This is substantially lower than that of the same point in 2009, where construction was 4.3 m sq ft, representing a drop of around 30%.It was recently announced that development will start at other large projects in the City: Land Securities’ ‘Walkie Talkie’ at 20 Fenchurch Street and British Land’s ‘Cheesegrater’/ The Leadenhall Building.
Sentiment amongst the property sector in central London is positive, with rent and rent-free periods continuing to move in favour of landlords as a supply-driven recovery takes shape. A two-tier market is evident in the UK capital with the spike in rent relating to brand new prime stock only, as a result of a smaller number of larger occupiers competing for limited top-quality ‘grade A’ space. There is currently 11.8 m sq ft of office space available in the City, of which 63% is grade A (7.5 million sq ft). At present, the vacancy rate in the City ‘core’ market is 10% and 7.5% in the City overall.
City core prime rents have risen to £55.00 per sq ft, a jump of around 25% year-on-year from £42.50 per sq ft in 2009. Given the shortage of grade A supply and limited space due to be completed in 2010, rents for prime space will continue to rise. Demand, however, has reduced and the appetite for lower quality space remains to be seen. Rent-free periods are now at 24 months for each year term certain, which is down 20% from the end of Q4 2009.
Take-up for the City in Q4 2010 was approximately 2.5 m sq ft, up from 1.8 m sq ft in the previous quarter and well below the 10 year average of 1.5 m sq ft (6 m sq ft/per annum 10 year average). Sixty percent of activity was as a result of pre-lets but other significant deals include MF Global taking 105,000 sq ft at 5 Churchill Place and Chartis taking 46,000 sq ft at 150 Cheapside.
Elaine Rossall, head of Central London Research, Cushman & Wakefield, said: “After a very challenging year in 2009, last year saw a big increase in take-up and a return of speculative development and pre-lets to the City, as evidenced by the UBS and Bloomberg deals. We expect to see further improvements in prime headline rental growth, which together with the recent increase in M&A activity and further confidence in financial services industry, should feed through to improved tenant demand. However, there is some concern over underlying active demand remaining muted.”