Bounce back in demand for London offices since referendum

By James Buckley - Monday, October 16, 2017 10:58

Q3 2017 heralded the fifth consecutive rise in London quarterly offices take-up, reaching 3m sq ft, the highest quarterly total since Q1 2016, according to new research from Colliers International.

London investment volumes in Q3 totalled £3.4bn, which was a significant improvement on Q3 2016 (£2.9bn), although a marginal reduction quarter-on-quarter (-4 per cent).

While post referendum uncertainty held down volumes in Q3 2016, 12 months on, the shortage of supply in the West End is clearly frustrating demand. Colliers forecasts that 2017 volumes should exceed £15 billion in London, eclipsing the ten-year average (£14.6 billion).

“Landlords and developers will be encouraged that take-up has risen above the 10-year quarterly average for the first time in 18 months; but there is still caution over pricing. While the availability of new space has continued to decline, occupiers remain focussed on value and on maintaining a priority on cost control,” said Guy Grantham, director, research & forecasting at Colliers International. 

Pre-letting activity in London continued to surge, reaching a 36-month high, boosted by Deutsche Bank, which signed a pre-commitment with Land Securities for a new City HQ at 21 Moorfields (470,000 sq ft), despite open concerns about the Brexit process.

“A significant change since the beginning of the year is the widening variety of business sectors demanding space, which is starting to readdress the swing we saw towards media and tech in 2016. However, competition for new Grade A product in core markets is intensifying and there is increasing concern about potential supply shortages in 2018 and 2019. This is driving occupiers with larger requirements in excess of 50,000 sq ft to look at pre-commitments as a way to secure prime product in desired locations,” adds Grantham.

Overall, vacancy has continued to rise across London to 5.5 per cent (11.9 million sq ft), but it has slowed markedly in the last three months with Colliers forecasting it to plateau in 2018 due to the lack of offshoring and grey space evident in the market.

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