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Soho and Covent Garden are star performers in London office property market

The report says that a buoyant end to 2011 took take up over the year to four million square feet for the Soho, Covent Garden, Midtown, City Fringes and Southbank markets, making it the best year since 2007.

Take up in 2011 was 500,000 square feet more than in 2010 and 600,000 square feet more than the long term average with Covent Garden emerging as the year’s strongest performer. Take up exceeded long term average levels by 55% at 1.241 million square feet in contrast to WC1 which had the lowest level since 2002 at 437,000 square feet.

The report explains that restricted supply and strong demand has meant rents have risen sharply in Covent Garden and Soho, increasing for the year by 20% and 30% respectively. This has particularly benefited the few new schemes that have been brought to the market.

‘We expect those few new schemes that deliver this year to perform well as supply for 2012 will be at its lowest for some years with only around 400,000 square feet of new space coming to the market in Midtown. Soho will also benefit as only around 90,000 square feet  is being built,’ said Charlie Killen, head of commercial at EA Shaw.
‘Demand may well fall back in the first half of this year as businesses take a cautious view on the economic situation. Assuming there is greater clarity over the euro zone and a successful summer Olympics and Jubilee, we expect the level of transactions to pick up towards the end of the year. The restricted development pipeline will mean rents for the best space will hopefully grow slowly albeit at a slightly slower pace than last year,’ he explained.

In Soho availability, which had been rising earlier in the year, decreased by 21% to 441,000 square feet from 557,000 square feet in the third quarter. Take up increased by 145% to 158,000 square feet from 65,000 square feet in quarter three following the successful letting of 104,300 square feet at the Crown Estate’s Air W1 scheme.
The report also says that following the completion of a number of schemes at the end of 2011 and early 2012 the vacancy rate remains artificially high. This new Grade A supply acted as a catalyst for the 30% of rental growth seen over the year.
Midtown take up was just 5% lower than the third quarter with a further 177,000 square feet under offer. Headline rents in WC2 increased again by £2.50 per square feet to £62.50 for the best space, but remained static at £47.50 per square feet in Holborn, where limited Grade A availability is holding back rental growth.

Availability decreased by 7% in the fourth quarter, resulting in the overall Midtown vacancy rate falling to 5.1% from 5.5% in quarter three. One or two buildings such as 1 Kingsway have seen higher rents and EA Shaw therefore sees the market continuing to show increases as the year advances.

Availability in office space for Holborn and City Fringes in quarter four decreased by just 0.5% to 1.64 million square feet from 1.65 million square feet in the third quarter. Take up decreased by 52% to 202,000 square feet from 421,000 square feet  in the third quarter.
There was no change to rents in both EC1 and EC4. Rents remained at £37.50 per square feet in EC1 (Clerkenwell & Farringdon) and £47.50 per square feet in EC4 (Fleet Street and City Fringe).

In Southbank take up in the fourth quarter decreased by 33% to 214,000 square feet  from the very high level achieved in the third quarter of 319,000 square feet. Additionally, there is a further 174,000 square feet under offer.