Heightened leasing activity witnessed in the early summer has continued into the third quarter of 2013 and led to occupiers taking decisive action in order to avoid a future lack of supply and a spike in rental values, says the report from Cushman & Wakefield.
Central London take up totalled 2.8 million square feet in the third quarter, some 18% up on the previous quarter. The total volume of central London office leasing seen in the first to the third quarter is also 44% higher than the 5.1 million square feet transacted during the same period in 2012.
In the City, a total of 1.7 million square feet of transactions have been recorded in this quarter. This is on a par with the second quarter which was the highest quarterly figure since the third quarter of 2007.
The report says that the resurgence in the City market has been driven by the return of larger transactions and an increasing number of pre-lets. For example, two pre-let transactions in excess of 100,000 square feet were signed in the third quarter.
Activity in the Docklands remains slow, mainly due to a quiet banking sector, but it has increased from around 75,000 square feet of transactions in the second quarter to 310,000 square feet in this quarter. However, this figure takes into account KPMG’s 200,000 sq ft letting of 30 North Colonade, where it is relocating staff from the City.
‘Sentiment in the City occupational market is definitely on the increase and this is reflected in the continuing momentum seen in the leasing market. We have seen take up in the first nine months of 2013 around 50% above the same point in 2012. Activity in the last two quarters has been above trend, supported by larger occupiers moving now in anticipation of a shortage of quality stock in the near future,’ said Andrew Parker, head of City agency at Cushman & Wakefield.
More than 856,000 square feet of transactions were completed in the West End this quarter, which is above the five year average. With the exception of the first quarter of 2013, which was bolstered by Google’s transaction, this is the highest quarterly volume since the fourth quarter of 2011.
‘The upturn in leasing activity in London’s West End seen this quarter reflects an air of positivity which hasn’t been present for some time. We are seeing the return of higher rents, competitive bidding and an increased number of requirements. I am convinced that we will look back at this moment in time as being the turning point for the cycle,’ explained Andy Tyler, head of West End office agency at Cushman & Wakefield.
The media sector continues to dominate leasing activity across Central London, accounting for 38% of leasing activity in the third quarter with financial services and legal the next most active at 13% and 12% of transaction volumes.
Singaporean sovereign wealth fund Temasek is rumoured to be paying the highest Central London office rent at £135 per square foot after leasing space in St James’s last month. This is close to the peak of the last cycle in 2007.
Cushman & Wakefield anticipates activity to continue to be robust in the final quarter of the year, with the volume of space under offer standing at 1.8 million square feet.
In the City, approximately 1.1 million square feet is under offer, with the largest deals around 50,000 square feet. The report says that the volume of space under offer is down quarter on-quarter due to the higher volume of signed transactions but remains on a par with the five year average.
Space under offer in the West End paints an improving picture with 713,000 square feet under offer, up from 521,000 square feet at the end of the second quarter.
Meanwhile, a separate report from CBRE shows that a total of 3.2 million square feet was transacted in the central London office occupier market in the third quarter, taking the year to date total to 9.2 million square feet, a third higher than at the same point last year.
The West End saw the greatest volume of take up of any central London market with 1.1 million square feet acquired over the course of the quarter, the highest quarterly total since the end of 2011. Southbank take up hit its highest point since the second quarter of 2007, with 0.8 million square feet transacted, including the two biggest deals in Central London.
The report points out that for the first time since 2010, take up in Central London has been above the 10 year average of three million square feet for two consecutive quarters.
Under offers in central London now stand at an on-trend 2.6 million square feet and the report says that there are nine buildings across central London with more than 50,000 square feet of space is currently under offer.
Also, for the first time this year central London availability fell below the 10 year average, dropping by 4% over the course of the quarter to 17 million square feet.
‘The first half of 2013 saw renewed optimism as a pick up in activity after the subdued levels of demand seen last year,’ said Emma Crawford, head of West End and Midtown Leasing, CBRE.
‘This has continued into the third quarter with nine deals over 50,000 square feet and a further nine buildings under offer suggesting that the improvement in occupier sentiment is enduring. Sustained heightened levels of demand together with falling availability in central London will support rental value growth,’ she added.
