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London Markets - Q3 2020

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The definitive guide to London’s office markets

Leasing

The brief easing of lockdown restrictions during Q3 saw the level of active requirements rise in central London. Some significant transaction took place which provided positive sentiment for the market.

However, the imposition of a second Lockdown in November will likely negatively impact demand over Q4. The extension of the furlough scheme means occupiers will continue to evaluate their business strategy in response to policy and the pandemic.

Rents

We are yet to see enough evidence to derive any shift in prime rents and typically landlords are working to maintain headline rents at their pre-pandemic levels. However, this is frequently at the cost of increased inducements – either with longer rent-frees or through greater flexibility in the lease terms.

Investment

Investment activity improved by over 75% when compared with Q2, as £1.26bn transacted in Q3. Overseas investors continued to be the most active buyer group, led by Far East and European investors, despite restricted international travel adding a further obstacle.

Currently, high quality London offices with strong tenant covenants are garnering the highest level of interest, while demand for value add stock is increasingly selective.

Demand for offices under 5,000 sq ft has been resilient since the first Lockdown. There is a finite point at which companies can operate and those who rely on face-to-face contact will still need a London office presence. There are a number of companies who have decided to leave serviced and co-working offices in preference for their own private offices and yet still seek lease flexibility and minimal capital expenditure in fitting out. This trend is expected to continue, coupled with larger occupiers downsizing at lease break / expiry. To date, the release of tenant ‘grey’ space has yet to saturate the market but there are certain sub markets, such as Victoria, which have seen a sizeable increase in larger fitted spaces of over 20,000 sq ft. This will inevitably result in some degree of rental softening. On the same theme, larger corporates occupying multiple offices are assessing their portfolios, releasing whichever building is most likely to secure an occupier first. This ‘off-market’ supply is harder to quantify, but may also place some downward pressure on rents and lift incentives over the next six months.

Patrick Ryan, Partner

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