Analysis of the London office market summer 2017


Occupiers remain cautious over economic uncertainty

Against the backdrop of both political and economic uncertainty; with a snap election, and two years of Brexit negotiations underway, the London office market continued to be subdued with occupiers acting cautiously over their real estate decisions. As a result, in Q2 take-up volumes totalled 2.6 million sq ft, a 6% decline on Q1 and 8% below the five year average.
Whilst this makes it five consecutive quarters of below average letting activity for the capital, when broken down by region, it’s only in the East where take-up is down, with both the West and Midtown exceeding their five year average. Media and technology companies were the most active sector with significant deals signed by NEX Group, Framestore and the Disney Corporation, continuing to demonstrate the diversity of occupier within the capital.

Availability continues to rise

A number of significant development completions across central London have led to an increase in overall availability. However, despite the delivery of a further 5.1 million sq ft by the end of the year, the majority of this space has already been let, which will limit the impact on availability in H2.
Of the available space, 22% is available from an existing tenant rather than a new lease direct from the landlord. Finance and banking occupiers are the most active in releasing space back to the market, with most of this sub-letting activity taking place in the East.
At the end of Q2, the availability rate had increased to 5.3%. The majority of this space is of good quality, with 63% either new or recently refurbished.

Development completions reach 2 million sq ft

In 2017, seven million sq ft of new office space will be delivered in central London across 77 schemes. This volume of new space is significantly higher than in previous years and will continue to increase the Capital’s availability.
The majority is still under construction and will be delivered in H2 2017, notably The Scalpel (386,000 sq ft), One London Wall Place (309,000 sq ft) and 3 Minster Court (275,000 sq ft). There will also be the delivery of Bloomberg Place (669,000 sq ft), although this building is entirely let to Bloomberg.
The increase in availability, both from tenant space and development, is likely to prevent any rental growth in the second half of the year. Already prime rents in the City have fallen 2% to £68.50 per sq ft as a result of the increased choice on offer to occupiers.

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