Central London offices - buoyant six months for leasing and investment

Citation

(1998), "Central London offices - buoyant six months for leasing and investment", Property Management, Vol. 16 No. 1. https://doi.org/10.1108/pm.1998.11316aab.014

Central London offices - buoyant six months for leasing and investment

Central London offices - buoyant six months for leasing and investment

Jones Lang Wootton last July released the Central London Office Report which details transactional activity for the first half of 1997.

Leasing markets

Following the strong level of take-up in Central London in 1996 (the highest since 1989), the first half of 1997 has remained extremely active with 389,000 sq m leased. With a further 223,000 sq m under offer as at 30 June 1997, Central London take-up looks set to match, or exceed, the 1996 level of 840,000 sq m. Half of the take-up during the first six months of 1997 was from the banking sector and the service sectors.

The supply of available accommodation in Central London has dropped significantly over the last quarter to 1.34 million sq m representing 6.6 per cent of total stock. The Grade A vacancy rate in Central London has now reduced to 1.6 per cent. The volume of speculative development activity has also reduced over the last quarter from 316,000 sq m to 275,000 sq m at the end of June, 1997.

A total of 91,000 sq m was pre-let in Central London during 1996 and 29,000 sq m had been pre-let so far in 1997.

Paul Yearley, West End Leasing Partner at Jones Lang Wootton, said:

"There has been a substantial increase in active pre-let enquiries in the West End; we have not seen the current volume of pre-let activity since the late 1980s and it is likely to continue for the foreseeable future."

Active tenant enquiries registered by JLW at 30 June stood at 792,000 sq m. Two thirds of the active demand in Central London is from the banking and service sectors. In the City over half (54 per cent) of active tenant demand is for large units in excess of 10,000 sq m, but there is only one Grade A building currently available in the City providing that amount of contiguous space, the International Financial Centre (formally the NatWest Tower). The individual floor plates, however, in this building are less than 1,000 sq m.

Neal Scambler, a Partner in JLW City Leasing, comments:

"With speculative construction activity at only 25 per cent of the level reached at the peak of the last development cycle, selective shortages are apparent for Grade A offices and the prospects for continued growth in top rents over the next one to two years are very good."

Investment markets

The investment market has also had a very active six months with £2.06 billion of turnover in the City and the West End compared with £3.1 billion during the whole of 1996. UK purchasers accounted for 50 per cent of turnover. There is strong demand for Central London property from UK institutions whose requirements are generally focused on investments let at or around rack rented level and property companies seeking a range of investments with development or active management potential.

Although German investors were less active in the second quarter with only £43 million spent compared with £245 million in the first quarter, there are a few of the large German funds with active requirements or investments currently under negotiation. There has also been an upturn in activity from other overseas investors, in particular those from the Middle and Far East.

John Stephen, Investment Parruer, commented:

"There is now tremendous scope for innovation. Investors are actively looking for problematic properties which can present opportunities; short leases being the obvious example."

Against a background of a strong economy and the uncertainty relating to the increase in Stamp Duty now resolved and positively received by the market, we are likely to see a strong second half to the year with the prospect of exceeding the £3.1 billion of turnover in Central London last year.

Investors are now active across the board with a broad range of requirements from UK institutions, property companies and overseas investors for development sites, active management properties and standing investments.