This reverses the trend of 2010 where demand levels fell as relatively few new requirements emerged. Compared to the last quarter, in the City market there was an increase of 12% to 7.8 million square feet which represents the first increase since June 2010. While in the West End, total occupier demand increased by 11% to 4.3 million square feet.
‘While the increased demand for London office space further demonstrates how strongly the market has recovered since the financial crisis, there is a growing imbalance between quality supply and increasing demand for Grade A space across London,’ said Jonathan Evans, head of West End Agency at Jones Lang LaSalle.
‘As the development pipeline continues to deplete, upward pressure on rents will only get stronger during the rest of the year. During the next six months the West End market will definitely see prime rents in the core consistently surpassing the £100 per square foot mark,’ he added.
While prime rents remain stable in the City at £55 per square foot, there was a 4.5% increase to £92.50 per square foot in the West end, where the service sector dominated take-up, accounting for 58% of the 540,000 square foot let. In the City 630,000 square feet was let and the banking and finance sector was responsible for 33% of total volumes.
‘Despite uncertainty over the situation in Japan, the Middle East and North Africa, activity has continued in the City albeit at a slower pace than last year. The City market continues to be shaped by a flight to quality, and given the known restricted supply response occupiers who are serious about their requirements will act quickly to secure the best quality space available,’ said Dan Burn, head of City Agency at Jones Lang LaSalle.
‘Going forward the banking and finance sector will continue to dominate the City market as they look to expand staff numbers, and we expect to see landlords reducing lease incentives during the next few months and pushing hard on rents as supply falls and demand continues to increase,’ he added.
In London’s office investment market £2.1 billion has been transacted since the start of the year, a 28% increase on the first quarter of 2010. The West End market accounted for £992 million, while the City reached £1.1 billion, an 83 % increase on 2010.
‘As a result of rising confidence in future rental growth, owners are increasingly seeking to retain exposure to London’s office market and this is limiting investment supply. Private buyers, property companies and overseas investors are competitively bidding on the few openly available West End assets, while in the City certain receivership sales continue to interest the market,’ explained Damian Corbett, head of Office Capital Markets at Jones Lang LaSalle.
‘Appetite is strengthening for exposure to short term vacancy and planning and construction risk in order to secure buildings which provide the opportunity to add value or capture rental growth over the coming years,’ he added.
