London office take-up is on the rise despite Brexit with demand in the West End at its highest for more than a decade, new research has found.
There is increasing demand particularly for office space over 50,000 square feet, creating supply pressures, according to the latest commercial report from global property advisor Knight Frank.
Indeed, the third quarter of 2017 recorded the highest level of office take-up so far in 2017. With 3.8 million square feet of office space in central London currently under offer and due to close by the end of the year, 017 is expected to have its strongest final quarter since 2014.
Office take-up in the West End reached 1.65 million square feet, some 43% above the long term average, which is coupled with the highest levels of recorded active demand since 2006.
The City has seen take-up total 1.6 million square feet in the third quarter, up 33% on the same quarter in 2016. The City core has seen a healthy growth in take-up at 37%, totalling 860,000 square feet, the highest level since the fourth quarter of 2016.
Take-up in Docklands totalled just under 248,000 square feet, the data also shows, with the majority of demand transacting in Stratford, accounting for 95% of the take-up during the quarter.
In parallel to the increased levels of take-up, the development pipeline has slowed. There is 4.4 million square feet under construction speculatively and due for delivery in 2018/2019 but the report points out that this is roughly equivalent to a single year’s take up of new and refurbished space, and significantly below the 5.6 million square feet leased in the past 12 months.
In the investment market, prime yields have remained stable in both the City and West End as demand remains strong. The Central London property market has seen significant investment, with turnover in the City totalling £2.8 billion during the third quarter, a substantial increase of 56% above the long term average.
The report explains that the increased levels of take-up, especially for units over 50,000 square feet, is leading to increasing pressure on the development pipeline, with companies increasingly forward committing to schemes ahead of their delivery. Since 2007, nearly 63% of deals over 50,000 square feet have been of new and refurbished stock, maintaining the pressure on development.
‘The figures show, that despite the perceived uncertainty surrounding Brexit, London is still a pre-eminent city, with strong evidence that business confidence is in fact more solid than sentiment expressed in the press may suggest,’ said Stephen Clifton, head of ventral London offices at Knight Frank.
‘The performance of the leasing market during 2017 has strengthened our outlook of the market’s performance. Occupiers are continuing to commit to London to satisfy their requirements and London also remains the destination of choice for overseas capital as the currency advantage and the capital’s safe haven status continues to draw investors,’ he explained.
According to Patrick Scanlon, head of central London research at Knight Frank, although the full implications of Brexit may still not have been felt yet, to date the number of occupier requirements have not fallen away as many had predicted.
‘However, with 42% of deals for larger units being transacted either before or during construction, occupiers are activating searches earlier to maximise the opportunity of securing suitable premises. And with downward pressure on supply, businesses will continue to broaden their search criteria,’ he added.
