Increase in office take up likely to stimulate development of key sites
7 Apr, 2010, London
London’s key office markets of the West End, City and Docklands have returned to significant growth in the first three months of 2010 as companies have moved quickly to take advantage of relatively low rents and the gradually dwindling supply of best quality space.
New statistics from real estate adviser Cushman & Wakefield, show that 3.1million sq ft of office space was taken up across central London, the highest figure since Q4 2008 and 330% higher than the same period in 2009. Cushman & Wakefield believes that the best start to a year since 1998 could now encourage developers to push ahead with the development of new landmark office buildings, albeit that many will require pre-lets in order to secure funding.
The capital’s good performance was evident in the City & Docklands markets where over 2.1 million sq ft was leased in the first three months, a 5-fold increase on Q1 2009 and a 16% increase on Q4 2009. The figure is well above the ten year quarterly average of 1.5 million sq ft and is equivalent in size to almost four ‘Gherkins’ being taken off the market. Major deals included Blackrock taking Drapers Gardens and Macquarie signing on British Land’s Ropemaker.
The demand for space in the City has provided a welcome fillip for developers with rents on prime office space rising 13.6% in the quarter to stand at £50 per sq ft – a level last seen in Q4 2008. The amount of space available to lease has returned to the Q1 2009 level at 12.0 million sq ft, down 7.0% from 12.8 million sq ft in Q4 2009. The vacancy rate across the City & Docklands has now dropped from 8.25% to 7.7%.
973,100 sq ft of office space was also leased in the West End market, an increase on Q1 2009 of 216% (up from 307,589 sq ft). Major lettings at the end of the quarter by British Land to Aegis (117,375 sq ft) and Gazprom (89,405 sq ft) at Regent’s Place helped to take the market to its highest quarterly total since Q4 2007. The West End has now had two consecutive quarters of take up at or above the long term quarterly average as it emerges from recession.
Prime office rents have increased by 6% over the quarter up from £75 per sq ft to £80 per sq ft in London’s most expensive submarkets Mayfair and St James’s. They were last at £80 per sq ft 12 months ago and have now recovered 9% of their fall from peak to trough. This increase in rents has been prompted by a significant increase in demand especially from the financial sector. There is currently over 1 million sq ft of office space under offer in the West End - the first time since Q3 2007 that the million figure has been breached. This figure includes 633,691 sq ft of office space demand from the financial and banking sector. Viewing levels continue to increase across the West End with the professional services sector generating the highest number followed by financial services and the media sector.
James Young, head of Cushman & Wakefield’s City office, said: "The first quarter of the year has seen a number of larger occupiers taking a long term decision on their future HQs, and a lack of development activity now means that rents are rising as availability drops. However, attention now turns to where the next wave of demand is coming from, which we need to see picking up to sustain the recovery."
George Roberts, head of London occupiers, Cushman & Wakefield, said: "The West End market has jumped into life with the take up from Aegis and Gazprom at the end of March adding to what was already a significantly improved quarter. Whilst one shouldn’t read too much into one quarter's figures, there is no doubt that the underlying market feels much more positive than at the end of the year with increased levels of activity. We are seeing a greater willingness from occupiers to actively consider longer term plans, however such plans continue to be very much centred around opportunities to relocate stemming from breaks and expiries rather than out of a need to accommodate increased head count."