CB Hillier Parkerâ€™s third quarter analysis of the central London office market shows a continuation of the recent trend of relatively low volumes of activity, such that small numbers of large deals have a significant impact on aggregate measures of take-up.
In quarter three, overall take-up rose by 2% to 253,000 sqm. (2.7 million sq ft) boosted substantially by the pre-letting of nearly 70,000 sqm. (750,000 sq ft) to lawyers Allen & Overy at Bishopâ€™s Square in the City. This deal alone accounted for over 25% of the quarterâ€™s take-up, and the only other transactions of more than 5,000 sqm. were the pre-letting of 13,700 sqm (147,000 sq. ft.) to Mercer Human Resource Consulting at St Katherines Dock and the letting of 9,200 sqm. (99,000 sq ft) to Capital International at Grosvenor Place in the West End. Overall, in response to continuing uncertainty in the outlook for the economy and corporate profits, the occupational market in central London has remained more subdued for longer than expected.
Reflecting these sentiments, and notwithstanding the most recent quarterly pick-up, take-up levels in 2002 are sharply down on those seen in 2000/01 and a full year take-up total of around 900,000 sq.m. (9.5 million sq. ft.) across central London now looks likely, even in the event of a slight reduction in activity in quarter 4 : this would be over 15% below the ten year average. Recent rental movements reflect this, with City rents down by 10% so far this year and West End rents by 7.5%.
On the supply side while the volume of available space has continued to rise, an increase of only 6% in quarter 3 compares favourably with the 13% rise in quarter 2 and indicates that the very pronounced expansion in availability seen in recent quarters may now be slowing. In particular, the West End market saw no increase in availability this quarter, and the 6.5% rise in City availability is well below the 16% rise recorded in quarter 2. We continue to hold to the view that the City office market remains most susceptible to the current turbulence in financial markets and the further potential disposals of secondhand space by companies consolidating or relocating within central London. While the Allen & Overy deal boosts this quarterâ€™s City take-up total well above that of quarter 2, the underlying level of occupier activity is still well down on last year.
The overall volume of construction activity in central London dipped slightly to 1.56 million sqm., reflecting a sharp dip in development starts due to concerns on the part of developers and funders about current occupier market weakness.
(source: CB Hillier Parker)