Central London Office Market Proves Resilient in 2012
31 Dec, 2012, London
Despite a backdrop of a continued economic uncertainty, the Central London office market has proved resilient over the year according to the latest report from real estate consultants Cushman & Wakefield, which predicts that take up of new office space in Central London for the year to December will be 7.3 million sq ft, marginally below the 2011figure of 7.8 million sq ft. This latest report highlights the emergence of the Media & Tech and also insurance sectors as key drivers of demand, and that the continued growth of these sectors combined with a peak in lease expiry events in 2015, will result in a healthier leasing market over the next 12 months as occupiers are forced to consider their office space options.
It has been a varied picture across the Capital in 2012 with the West End expected to see a drop in take up of space of 25% for the year compared to 2011 with overall take up levels reaching just 2.5 million sq ft. In the City & Docklands however, take up of space will be 4.8 million sq ft around 10% up on 2011 levels which benefitted from a welcome upturn in activity from the insurance sector.
During the year to date, take up of office space in the West End has been dominated by the Media & Tech sector which accounted for 30% of all leasing activity of office space. Notably, the West End saw a surge in pre-letting activity with a total of 11 pre-let transactions taking place in West End compared with the 10 year average of just 3 pre-lets. This surge illustrates the acute lack of Grade A stock, and very low availability of prime Grade A space with vacancy rates at just 2.4%. The report suggests that the scarcity of development opportunities in the West End will see Grade A vacancy rates come under further downward pressure and are likely to dip below 2.0% in 2013.
Guy Taylor, Head of West End office Agency at Cushman & Wakefield: "We are seeing a migration eastwards from some occupiers not only because rents in traditional locations such as Soho and Covent Garden are too high, but also because these new locations attract like minded sectors who like working near to each other but also because a high proportion of the staff live there too."
Amount of space taken up by Insurance sector doubles in 2012
Banking & Financial services accounted for 23% a similar level to 2011. However the largest banking & financial transaction (excluding regulatory bodies P.R.A &F.O.S) was Nationwide Building Society which leased 49,000 sq ft at 1 Threadneedle Street. Grade A vacancy rates in the City are currently 4.4% and this is expected to move out towards 5.0% in 2013 with the completion in 2013 of 2.5 million sq ft of Grade A stock.
Growth in active demand to drive leasing activity in 2013
According to Cushman & Wakefield, the amount of office space actively being sought by companies across Central London (active demand) has increased during 2012 and now totals almost of 8.7 million sq ft compared to 7.5 million sq ft at the start of the year.
The media & technology sector accounts for nearly 35% of active demand in Central London with the largest requirements being Google, Omnicom, Financial Times, and Ogilvy. Companies in this sector are relatively footloose, and are increasingly open to considering their property options right across Central London.
The financial sector accounts for 19% of active demand, with the majority of identified requirements being in units of below 50,000 sq ft. Demand from banks has fallen sharply, as the sector bears the brunt of the economic downturn and they account for just 2% of active enquiries across Central London.
Andrew Parker, Head of City Agency at Cushman & Wakefield: "The media & tech sector will continue to exert an influence on the market and will increasingly fill the vacuum caused by the financial crisis. The attractions of vibrant locations for young creative talent added to a lower cost base is causing traditional West End media & tech companies to broaden their horizons and review the suitability of locations such as Shoreditch, Clerkenwell, Kings Cross and other northern City fringe locations as potential long term homes."
Occupiers under pressure to review space requirements as lease events loom
Cushman & Wakefield highlights the high level of lease expiries due in 2015 as another key factor that will drive occupiers to review their office requirements. This will potentially result in stronger levels of leasing activity in 2013 and continued pre-letting activity as occupiers act quickly to secure the best space available. Not all these lease events will result in relocation and we will continue to see occupiers regear, eg Old Mutual at 1 High Timber Street and Warner Brothers at 98 Theobalds Road.
# # #