London office market recovers- 50% increase in lettings in West End
15 Jul, 2010, Budapest, Hungary
- Office space leased to date in 2010 more than doubles compared with same periodlast year
- However, Q2 quieter than Q1 in City as tenants take stock of new government and emergency budget
- Lowest level of office construction since 1993 causing availability levels to fall steeply
- Large number of leases expiring in next five years, which could act as catalyst for increased demand
- Early emergence of pre-lets due to lack of availability, with two already this year
The London office market continues to improve with prime office rents likely to grow by more than 50% in the West End and by around 33% in the City, by the end of 2014, according to global property adviser Cushman & Wakefield. Active demand from all sectors, a rapidly dwindling amount of available quality space and a worrying dearth of offices being built will lead to increased competition amongst corporates looking to fix deals.
A total of 492,386 sqm of office space has been taken up across the key markets of the West End, City and Docklands so far this year. This is an increase of more than 150% year-on-year, with only 195,096 sqm office space leased in Q1 and Q2 2009. However, Q2 2010 represented a quieter quarter than Q1 in the City and Docklands, with 195,096 sqm taken, compared to Q1's 287,999 sqm. Since January 2010 there has been a 50% increase in major lettings in the West End, with take-up to date 176,515 sqm together with 65,032 sqm currently under offer - more than that of the whole of last year. Cushman & Wakefield expects take-up in the West End to be between 255,000-278,000 sqm by the end of 2010. This would be a large increase on 2009 (176,515 sqm). Key deals in Q2 included Kleinwort Benson signing on 14 St George Street and GE taking The Ark, Hammersmith. Q2 has seen two pre-lets in the West End: CBRE at Henrietta House and Robert Walters at Slingsby Place.
Office lettings in the City and Docklands this year total 312,154 sqm, around 75% that of
the whole of last year and close to a three-fold increase year-on-year. Cushman & Wakefield
expects take-up in the City to be between 464,000-511,000 sqm by the end of 2010. This compares
to 455,224 sqm in 2009. Prominent lettings in Q2 2010 include Shell signing on 40 Bank Street,
Canary Wharf and Baker Tilly at Nexus Place, Farringdon.
The high number of office leases expiring or reaching a break option in the next few years will also increase pressure on occupiers to review property strategies. Cushman & Wakefield estimates that this will affect around 1,858,060 sqm of City office space, and 836,127 sqm of West End, between now and 2015. In the West End, demand is due to: leases expiring/ reaching a break option (48%); expansion (30%); and consolidation (22%).
James Young, Head of Cushman & Wakefield's City office, said: "This year has seen the City office market rebound strongly with leasing transactions increasing substantially and availability levels falling steeply. Occupiers are still cautious about sanctioning moves in the current economic climate, but they realise that the supply squeeze is going to lead to a lack of options, and so pre-lets will start making a return."
Guy Taylor, Head of West End Office Agency at Cushman & Wakefield, said: "The West End office market turned a corner during the second half of 2009 with take-up leaping upwards. As the recovery gains pace, we see rents climbing steeply and space growing increasingly scarce. There will be more refurbishment of buildings as banks refuse to lend money on large new office developments. As the market swings back in favour of landlords, corporates must move quickly to secure competitive deals and incentive packages."
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