London office market: Good prospects from 2014

http://www.property-magazine.eu/london-office-market-good-prospects-from-2014-23396.html

UK
13. Dezember 2012
London office market: Good prospects from 2014

In its latest research paper, Henderson’s c. £12.4 billion Property business, examines prospects for the Central London office market. The report notes that City Fringe, West End and Midtown sub-markets have benefitted from strong take up by technology, media and telecommunications firms during an otherwise difficult year for the domestic economy. Core City take up has been dominated by lettings from the insurance sector with very subdued activity from banking. Underlying City take-up has been relatively stable over the last 12 months or so, at around 75% of the long run average. This sub-par level of activity is expected to persist while low confidence and volatility persists in the markets.

However, prime rents have appeared resilient so far, alleviating earlier concerns that they might fall. The West End is arguably less exposed to global headwinds than the City and underlying annual take-up has remained close to long run average. Prime rental growth has been evident, not only in the Mayfair core but more notably on new developments in Soho and Midtown.

Investor demand has been particularly strong, underpinning strengthening capital values in the wider West End market, but failing to prevent softening values in the City. However, prime yields have held firm in both the West End and City market as global cross-border buyers fuel the demand for long-leased, big ticket offices.

In terms of the outlook, although London-based surveys of activity are more upbeat than their national equivalents, there are growing concerns of job shedding among financial firms unless trading and M&A volumes improve. Due to the positive correlation between underlying financial sector confidence and occupier take-up, a sustained stock market recovery will be an important factor behind an improvement in rents. At present the occupier market balance is consistent with stability, but it is important to remain vigilant of developing risks.

Andy Schofield, Director of Research, Property at Henderson, comments: “The resurgence in City rents in 2010 was driven by large banking requirements and not at all typical for that point in the cycle. We therefore expected rents to flatten off in 2012, irrespective of the weaker confidence and volatility that has been plaguing financial markets. We remain confident rents will enter their second growth phase from 2014 once fundamentals catch up. By 2014 we expect the global economic recovery to gain momentum, financial confidence to resume and take up to return to its long run average. Outside the tower schemes, there is very little speculative City space currently under construction and set to complete beyond 2013. In addition, we anticipate elevated levels of churn across Central London occupier markets due to expiring leases.”

http://www.property-magazine.eu/london-office-market-good-prospects-from-2014-23396.html