Occupiers committed to 1.4m sq ft of offices in the heart of London between April and June, according to Bilfinger GVA.
What’s the latest?
Office leasing activity in central London dropped 45% in the run up to the EU referendum.
Take-up during the three months was also 42% down on the five-year quarterly average of 2.5m sq ft, according to Bilfinger GVA.
Meanwhile, the availability of offices to rent across the heart of London hit its lowest level since the end of 2007, falling from 4.5% to 4.1% during the quarter. There is now just 8.1m sq ft of office space on the market.
Why is this happening?
There was a notable rise in caution during May and June as the vote on 23 June drew closer. Many firms delayed decisions until the outcome of the EU referendum was clear – even withdrawing from deals.
Who does it affect?
Patrick O’Keeffe, head of London agency and investment at Bilfinger GVA, believes there will be very limited expansionary demand by occupiers and that the majority of requirements will now be ‘event-driven’.
And while uncertainty prevails, landlords may be willing to offer generous terms to occupiers rather than run the risk of putting stock on the market.
Sounds interesting. What’s the background?
The central London office rental market started to slow in the six months prior to the vote, with prime rents inching up by just 0.1% during the second quarter.
According to Bilfinger GVA, prime office rents across central London ranged:
- £45 per sq ft to £150 per sq ft in the West End
- £57.50 per sq ft to £70 per sq ft in the City
- £38 per sq ft to £42.50 per sq ft in the Docklands
And research from Frost Meadowcroft revealed that prime office rents in west London remained at levels seen at the beginning of the year:
- £55 per sq ft in Hammersmith
- £52.50 per sq ft in Shepherds Bush, Chiswick, Fulham and Ladbroke Grove
- £73.50 in Paddington
But despite office availability remaining close to record lows and the short-term development line being ‘muted’, a fall in occupier demand is now set to curtail the rental growth seen over the last six years, Bilfinger GVA warned.
O’Keeffe added: "The central London office market has just experienced the longest period of rental growth on record, due to a prolonged period of high activity, with record take-up levels during the cycle.
"In a cyclical market such as ours, it should be no surprise that we experience a slowdown."
Top 3 takeaways
- Central London office take-up between April and June totalled 1.4m sq ft - down 45% on the previous quarter
- There is now 8.1m sq ft of offices to rent across the heart of London – a fall from 8.5m sq ft at the end of January
- Central London prime office rents inched up by just 0.1% during the second quarter