London Office Market Activity at Record Levels in Q3

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Based on a new Knight Frank commercial real estate report, absorption of office space in London reached 4.6 m sq ft during Q3 2014, the highest level since 2007, and 45% above the long-term average. The City, in particular, saw levels total over 3.0 m sq ft, a level not seen since 2000.
 
Figures revealed that during the third quarter of 2014, the leasing and investment markets across Central London continued to show confident market conditions. Both markets saw an increase in activity, specifically the leasing market showing a particularly strong quarter.  The three largest deals of the quarter included Amazon taking 430,000 sq ft at Principal Place, M & G Investments completing their deal of 330,000 sq ft at 10 Fenchurch Avenue and Havas Media signing at 3 Pancras Square.
 
Supply in Central London fell to its lowest level since 2008, totaling 14.4 m sq ft, 20% below the long-term average. This represented a current vacancy rate of 6.2%. Supply of new & refurbished space fell by over 1.0 m sq ft, from 6.0 m sq ft in Q2 to 4.9 m sq ft by the end of September.
 
There were 13 buildings across Central London that could provide 100,000 sq ft of new & refurbished space to a single occupier within the next six months, down from 20 during the same quarter of 2013.

This tightening supply was also reflected in the future development pipeline, of the 6.7 m sq ft of space under construction, nearly half (46%) was already pre-let.
 
Senior Analyst Hayley Blackwell from Knight Frank's research team says, "Occupier confidence has clearly strengthened during 2014 which has translated to above average take-up figures across all markets. If occupier activity continues at this pace, coupled with the current level of space under offer, we could see record figures for Central London take-up by the end of the year."
 
The Central London investment market performed well during the third quarter, with £4.4 billion of assets sold, well above the long-term average of £3.1 billion. Overseas investors continued to dominate transaction volumes, specifically the larger lot sizes, accounting for 74% of turnover. Despite these numbers, domestic investors have remained very active in the market, accounting for more than half of all transactions by number of deals. Yields remained stable at 3.75% in the West End and 4.5% in the City; however, we expect further downward pressure by the end of the year.
 
Hayley Blackwell further commented, "With an improving economy and further rental growth expected across all markets, overseas buyers will continue to target London, albeit the lack of stock will play its part in future transaction volumes".