GVA’s Central London Office Analysis reports that Central London take-up was robust in Q3 2017, with a total of 2.4 million sq ft of let space reflecting an increase of 10% on the previous quarter. In tandem, central London investment totalled £4.1 billion across 32 deals, 6% up on the previous quarter and double the corresponding quarter in 2016, which had been affected by the result of the EU referendum.
However, these quarterly rises sit alongside a slightly dimmer long term view, with office take-up down 4% on the five-year quarterly average of 2.6 million sq ft, while investment volumes for 2017 so far are just 10% down on those registered during the whole of 2016 despite there being 45% less deals.
Analysing the drivers of these figures, it is clear that the office market continues to be underpinned by a healthy level of demand, with headline rents remaining consistent in most submarkets. However, the current trend of tenant incentives, with 24 months now available on a ten year lease across most submarkets, has transitioned central London into an occupiers’ market. On a net effective basis, occupiers are getting a substantially better deal than they were this time last year, with net effective rents on average around 13% cheaper than they were this in Q3 2016.
In addition, there has been a 22% increase in available space compared to the period last year, with a total of 10.4 million sq ft available across central London. This is due in part to the practical completion of 18 buildings and 2.6 million sq ft of space this quarter, but also to the changes in occupier needs as the requirement for more agile working space gains prominence.
Patrick O’Keeffe at GVA commented: “In the last quarter, we have seen large deals done by Deutsche Bank, Cancer Research, British Council, Boston Consulting Group and Spotify. These significant deals have ensured that take-up for the year remains robust. This is likely to continue into the final quarter, with ICAP recently signing and others rumoured to be actively in the market.
“Despite this, there is a feeling that there is an over-reliance on large deals and the co-working sector, with the rest of the market seeing a softening in demand, withmore examples of requirements being temporarily shelved or businesses erring towards the lower end of their size requirements.”