City rents in Q4 increased for the first time since 2007, and take-up for 2009 was higher in the Square Mile than in 2008, thanks to a second half recovery in activity, according to Knight Frank's provisional statistics. The West End saw rents stabilize, as availability recorded its first decline in over two-and-a-half years.
Knight Frank's figures show the central London office market has exited the recession, as take-up increased for a third consecutive quarter and supply fell across the capital. Knight Frank attributes the move out of recession to London's high exposure to international financial markets, which moved into an upswing in Q2 of 2009.
Highlights
City prime rents increased by 3.5% to £44.00 per ft² in Q4 09, as landlords recover some of the over-correction in rents which occurred earlier in the year
City take-up increased by 14% quarter-on-quarter to 2.2 m sq ft, and was double the 1.1 mln. ft² acquired in Q4 2008. This is ahead of the long-term average of 1.6 m sq ft per quarter
Take-up totalled 5.8 mln. ft² in 2009, compared to 5.3 mln. ft² in 2008. First half take-up in 2009 was 1.7 mln. ft², second half take-up was 4.1 mln. ft²
Professional firms, insurance companies, and global financial firms were major acquirers of space
Availability fell to 12.2 m sq ft in Q4 09, the second consecutive quarter of falling supply in the Square Mile, having peaked at 13.4 mln. ft² in Q2 09
West End take-up recorded an 44% quarter-on-quarter rise to 1.2 mln. ft², which matches the long-term average figure
Take-up totalled 3.1 mln. ft² in 2009, compared to 4.2 mln. ft² in 2008. First half take-up was 1.1 m sq ft, second half take-up was 2.0 m sq ft
Global corporations, public sector organisations, and media firms were active in the market. There was also a notable recovery in demand from the fund management industry
Availability declined to 8.7 mln. ft², down 6.0% on the previous quarter.
West End prime rents stabilised at £65.00 per ft², although we expect a return of rental growth in the next six months in the next quarter
James Roberts, head of Central London research, Knight Frank said: "Supply has clearly peaked and take-up in London has risen for three consecutive quarters. The capital's office market is out of recession, thanks to the recovery seen in the financial markets and global economy. With construction activity at a four year low, we expect supply to tighten further this year. Consequently, the increase in rents recorded in the City will continue in 2010, and spread to the West End by the Summer."
Will Beardmore-Gray, head of City leasing, Knight Frank said: "The top end of the City market is getting competitive again, with tenants losing their preferred options by those making better offers. The early stage rental growth in Q4 was largely over-correction being clawed back, but with such a constrained development pipeline we expect sustained rental growth this year and next, and further reductions in rent free periods."
Tim Robinson, head of West End leasing, Knight Frank said: "The pick-up in activity from the specialist financial firms in the West End is encouraging, and at odds with rumours that hedge funds are deserting London. Many funds are opting for a joint office solution one on-shore, one off-shore as a footprint in the capital remains essential for business purposes. London is an important hub in the global economy and places like Geneva do not have the scale necessary to replicate that. In the vacant possession sale market there have been some outstanding prices achieved. This is further evidence that the West End core remains top of the shopping list for some overseas buyers."
Bradley Baker, head of Central London tenant representation, Knight Frank said: "Landlords are becoming increasingly confident demanding more punchy rents for new Core space whilst rent free periods, which peaked last year, are coming in for the best space. However, there are still very attractive deals out there with landlords continuing to be p
