The London office market continues to improve with prime office rents likely to grow by more than 50% in the West End and by around 33% in the City, by the end of 2014, according to global property adviser Cushman & Wakefield. Active demand from all sectors, a rapidly dwindling amount of available quality space and a worrying dearth of offices being built will lead to increased competition amongst corporates looking to fix deals.
A total of 492,386 m² of office space has been taken up across the key markets of the West End, City and Docklands so far this year. This is an increase of more than 150% year-on-year, with only 195,096 m² office space leased in Q1 and Q2 2009. However, Q2 2010 represented a quieter quarter than Q1 in the City and Docklands, with 195,096 m² taken, compared to Q1's 287,999 m².
Since January 2010 there has been a 50% increase in major lettings in the West End, with take-up to date 176,515 m² together with 65,032 m² currently under offer - more than that of the whole of last year. Cushman & Wakefield expects take-up in the West End to be between 255,000-278,000 m² by the end of 2010. This would be a large increase on 2009 (176,515 m²). Key deals in Q2 included Kleinwort Benson signing on 14 St George Street and GE taking The Ark, Hammersmith. Q2 has seen two pre-lets in the West End: CBRE at Henrietta House and Robert Walters at Slingsby Place.
Office lettings in the City and Docklands this year total 312,154 m², around 75% that of the whole of last year and close to a three-fold increase year-on-year. Cushman & Wakefield expects take-up in the City to be between 464,000-511,000 m² by the end of 2010. This compares to 455,224 m²in 2009. Prominent lettings in Q2 2010 include Shell signing on 40 Bank Street, Canary Wharf and Baker Tilly at Nexus Place, Farringdon.
A major factor in the upturn from 2009 is the exceptionally low level of buildings under construction. In the West End just 56,245 m² of office space, with only seven schemes over 1,858 m², is being built the lowest since 1993 (46,916 m²). This will severely reduce the space available, causing rents to increase strongly in 2011 and 2012. The City also has a lack of new development; there are only two schemes due to finish during 2011 - Heron Tower and Cannon Place.
The high number of office leases expiring or reaching a break option in the next few years will also increase pressure on occupiers to review property strategies. Cushman & Wakefield estimates that this will affect around 1,858,060 m² of City office space, and 836,127 m² of West End, between now and 2015. In the West End, demand is due to: leases expiring/ reaching a break option (48%); expansion (30%); and consolidation (22%).
James Young, Head of Cushman & Wakefield's City office, said: "This year has seen the City office market rebound strongly with leasing transactions increasing substantially and availability levels falling steeply. Occupiers are still cautious about sanctioning moves in the current economic climate, but they realise that the supply squeeze is going to lead to a lack of options, and so pre-lets will start making a return."
Guy Taylor, Head of West End Office Agency at Cushman & Wakefield, said: "The West End office market turned a corner during the second half of 2009 with take-up leaping upwards. As the recovery gains pace, we see rents climbing steeply and space growing increasingly scarce. There will be more refurbishment of buildings as banks refuse to lend money on large new office developments. As the market swings back in favor of landlords, corporates must move quickly to secure competitive deals and incentive packages."
Source: Cushman & Wakefield