It shows that the investment market across central London is still out performing in terms of demand from both UK and overseas money as it continues to remain the number one destination for placing global capital.
The West End has seen a buoyant year with provisional figures year to date reaching £4.8 billion, compared with £3.7 billion at the equivalent period last year.
Over the third quarter, sovereign wealth and overseas institutions have been the most active transacting £425.4 million with the purchase of such buildings as 23 Savile Row, W1 by Plaza Global Real Estate Partners and Kinnard House, SW1 by GLL.
Looking to the fourth quarter of the year the analysis expect to see continued transactional activity together with a healthier pipeline as positive sentiment continues for the next three to six months.
In the City, the market continues to remain strong for prime investments with no let up over the Olympics and the traditionally quiet summer period for the investment market. Year to date around £6.5 billion has been transacted, over £1.84 billion up on the equivalent period last year.
On this basis, year end turnover could reach in excess of £8 billion, compared to the 10 year average of £5.9 billion. Overseas investment is expected to continue dominating this market with a number of large investments recently exchanged or placed under offer to parties from the Middle East and Far East.
‘The Investment market was busy over the summer as investors continued to target Central London as the first choice for placing Global money. As a result supply dipped significantly, particularly in the West End. There are a number of new sales coming to the market over the next few months but demand is still expected to outstrip supply. All investor sectors continue to be active although UK funds are largely maintaining a neutral stance,’ said Damian Corbett, head of London Capital Markets at Jones Lang LaSalle.
In the West End, year to date leasing volumes have been disappointing, totalling 1.3million square feet compared with 1.8 million square feet at the equivalent period last year and a long term average of 3.2 million square feet. However, there has been an increase in activity from the TMT, energy and retail sectors who are increasingly placing focussing on locations and stock that will help them attract and retain key staff.
Prime rents are averaging £95.00 per square foot, however there are a small number of £100 per square foot plus transactions being achieved or rumoured to be in negotiations in the Core market. While leasing activity was subdued over the summer and Olympic period, this was not unexpected and we anticipate improvement in demand and take up in the fourth quarter and over the first half of 2013 with a notable increase in live requirements.
In the City market, year to date leasing volumes are ahead of the equivalent period in 2011, with 2.8 million square feet transacted compared with 2.1 million square feet last year. Jones Lang LaSalle’s house view anticipates the full year of take-up to be around four million square feet, ahead of last year’s total but still below the long term average of 5.1 million square feet.
An increase in bigger deals of 50,000 square feet plus is evident with 10 transactions taking place over the year to date, compared with only two at the equivalent period last year and a further four remain under offer. However, the firm says that it is still a fragmented market and one that has largely been driven by small churn deals.
Location continues to be an important factor, particularly in EC3 where the majority of these large transactions are taking place. The Insurance sector has been active accounting for 14% of total demand with the likes of JLT, Royal & Sun Alliance, Prudential and Gallagher Heath all either under offer or in negotiations and there is good occupier interest in other existing buildings and new developments under construction.
Growth from the TMT sector is driving both take up and demand year to date, accounting for 26% of total take up with around 600,000 square feet let compared with 460,000 square feet over the entire of 2011 and a long term average of 11%. There has been limited activity from the banking and finance sector over the past 12 to18 months, and given the current economic climate and announcements of job cuts within this sector it is unlikely we will see a bounce back in activity in the medium term.
Prime rents are averaging £55 per square foot with evidence of £60 per square foot being achieved at the top end for prime stock. Prime rental levels have been stable for the past six consecutive quarters in the City and while there could be some very modest rental growth in the final few months of 2012, the firm’s rental growth predictions anticipate growth to return in 2013 and 2014 as we start to see a further tightening in supply and pent up demand transacted.
‘The TMT sector continues to thrive across London. It is increasingly migratory from their traditional heartlands seeking locations and real estate that can not only fit with their business plan but provides the creative environment to retain and attract the best talent,’ said Neil Prime, lead director of UK Office Agency at Jones Lang LaSalle.
‘The insurance sector continues to be the highlight of the City market which vindicates developers’ decisions to press the button to build in this location. Supply continues to be under control but we believe that demand will come back in the second half of 2013 when we will see a rental bounce as companies are able to move due to increased confidence, expiries/breaks in existing leases and the physical obsolescence of existing stock,’ he added.
