Over the past couple of years, overseas investors have been flocking to the Central London office market, drawn by its transparency, liquidity and scale, as well as the prospects for the capital’s economy. So much, in fact, that 2012 saw the highest volumes since the onset of the financial crisis, with international buyers accounting for 74% of activity. Unsurprisingly, the supply of the prime stock many are looking for is beginning to dry up, and they are beginning to look at secondary stock with angles, as well as joint ventures with local players.
Meanwhile, the letting and development markets – which ultimately supply investors with the product they need – have been quiet. Perhaps not as quiet as many might have expected a few years ago, but certainly below long-term averages. Activity will certainly have to pick up if the investors are to remain confident about London – and if they are to continue to be supplied with opportunities.
Luckily, there are now growing signs that this is beginning to happen. Set aside the fact that the first quarter produced the highest take up for two years, as the total was skewed by the 863,000 sq ft presale to Google at King’s Cross. The important trends lie in the detail.
The amount of space under offer as at the end of the first quarter stood at 1.9m sq ft, the highest since 2011. Active underlying demand – with the vast Google deal stripped out of the picture – rose by 13.6% over the period. Meanwhile, our leasing teams report mounting interest from potential occupiers, leading to a sense that negotiations are becoming more pointed. It is no surprise that prime City and West End rents have edged up by £2-£2.50 over the past six months to stand at £97.50 psf and £57.00 psf respectively.
The key question is whether all this interest will translate into activity. Given the nervousness surrounding global economic prospects, and the continued turbulence in the Eurozone, companies are wary of making significant commitments. Deals are taking far longer to close than was typical before 2008.
Given the growing signs that the wider UK economy is improving, it seems likely that decision makers will hold their nerve and begin to take the space that they surely need. The second half of 2013 could see much stronger volumes in the London office market than we have seen for some time.
For your further interest check out our recent Central London office market report