The supply of office space in Central London continues to shrink, according to a new report from JLL. The research reveals that supply fell 11 per cent in the third quarter of 2014 to 10.5 million square feet – compared to 11 million sq ft at the end of the previous quarter. The current vacancy rate is now at 4.7 per cent, the lowest since 2008.
Strong leasing activity continued in Q3 with 3.5 million sq ft let across Central London, the highest quarterly total since Q4 2010. Year to ate take-up is now 8.5 million sq ft, slightly ahead of the equivalentperiod in 2013, which was a very strong year.
This combination of high demand and low supply is putting upward pressure on rents. Indeed, supply in the West End remains “critically low”, warns JLL, currently around 2.4 million sq ft, which equates to a vacancy rate of 2.6 per cent. This has supported rental growth in many of the West End sub-markets with a tightening spread of rents across the wider West End market.
Prime headline rents in the City core increased to £61.50 per sq ft in Q3, up from £60.00 per sq ft at the end of Q2. Prime rents in the Docklands increased to £40.00 per sq ft from £38.50 per sq ft; the first increase since Q3 2011.
Q3 investment volumes reached £4.3 billion, which takes the year-to-date total to £9.9 billion. This is behind the equivalent periods in 2013 and 2012, which were particularly strong years, but marginally ahead of the 10 year average. City prime yields moved in 25 basis points to 4.25 per cent and are now at their lowest since 2007, while West End yields remained stable at 3.75 per cent, although an inward bias remains.
As a result of the robust take-up, the volume of floorspace under offer fell 25 per cent to 3.0 million sq ft, from a recent high point of 3.9 million sq ft in Q2. However, notes JLL, it remains 50 per cent higher than the same point in 2013, which indicates leasing activity will continue at above average levels into 2015.
Source: The Movechannel