West End office take-up falls by quarter
Take-up of offices in London’s West End fell by approximately 1m sq ft during 2012, according to a report from Jones Lang Lasalle (JLL).
The disappointing figures, highlighted in the real estate services fourth quarter review, represent a fall in completed deals from 3.2m in 2011, to just 2.4m in 2012.
Analysts believe that businesses – especially those within the creative media industries – are increasingly turning towards London’s burgeoning technology hub around Old Street from the more traditional haunt of Soho, as rents in the West End remain high.
Such expense is being compounded by a restricted supply of Grade A office space in the area, with the report detailing a vacancy rate of 3.2%; up marginally above the long-term average of 3.1%.
In contrast, leasing levels in the City of London rose slightly above those seen in 2011, with JLL stating that active demand was still relatively constrained, while total office demand stayed buoyant at around 10m sq ft.
A 3.8m sq ft leasing volume in the City was 12% higher than in 2011, with the number of deals completed in the closing weeks of 2012 projected to bring the final total for 2012 to 20% higher than in the previous year.
Neil Prime, Head of Office Agency at JLL, said: “In the City, the second half of 2012 has proven that for the right stock in the right location transaction activity remains encouraging, with healthy headline rents being achieved, particularly in EC3.
“We are also beginning to see certain occupiers that have been in market for some time making decisions on their preferred real estate. The market temperature does seem to be rising slightly.
Prime suggests that the most important factor in achieving sustained performance in the City market through 2013 will be a slow snowballing effect of investor confidence, which is reliant on a period of continued economic recovery.
He said: “The key to next year’s market performance will be occupier confidence and for that to begin to return on a wider scale we will require a period of relative economic stability. Assuming that does occur we expect prime rents in the city core to remain stable during early 2013 with growth anticipated toward the second half of next year.
Despite the exodus of technology and creative media industries, Prime believes the versatility of the West End means that companies in the financial and insurance sectors will continue to take space in the affluent area around Mayfair.
“The diversity of London’s West End remains its key strength, although the year has been more challenging for the core Mayfair and St James markets, which rely more on financial services. However, rents have held and demand is likely to strengthen over the year.”