Total occupier demand for London office space increased by 6% in the first quarter of the year, accordingly to preliminary figures issued by real estate advisory firm Jones Lang LaSalle.
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 ft² (approx. 725,000 m²), which represents the first increase since June 2010. In the West End, total occupier demand increased by 11% to 4.3 million ft².
Jonathan Evans, Head of West End Agency at Jones Lang LaSalle said: "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.
"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 ft² mark."
While prime rents remain stable in the City at £55 per ft², there was a 4.5% increase to £92.50 per ft² in the West End, where the service sector dominated take-up, accounting for 58% of the 540,000 ft² let. In the City 630,000 ft² was let and the Banking and Finance sector was responsible for 33% of total volumes.
Dan Burn, Head of City Agency at Jones Lang LaSalle, said: "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.
"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."
In London's office investment market £2.1 billion has been transacted since the start of the year, a 28% increase on Q1 2010. The West End market accounted for £992 million, while the City reached £1.1 billion, an 83% increase on Q1 2010.
Damian Corbett, Head of Office Capital Markets at Jones Lang LaSalle, said: "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. 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."
Source: Jones Lang LaSalle