London office demand weakened in Q3 with take-up of 2.7m sq ft. This was a fall of 18% on Q2 and 10% below the 5-year quarterly average. An increasingly uncertain economic outlook dampened occupier activity, particularly for the larger size bands. This sluggishness is set to persist for the rest of the year.
Availability nevertheless continued to trend downward to 8.2% in Q3 from the recent peak of 9.4% in Q2 2021. Tenant-controlled available space is becoming more prominent.
Grade A rents in three out of our 15 submarkets increased in Q3, with Knightsbridge posting the strongest growth.
Despite positive income return and rental growth at the prime end of the market, London office total return is expected to be negative overall in 2022 and continue to be so in 2023, as outward yield shift continues to drag.