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Spotlight on the London Office Market

November 2014: Serviced Offices Advice Call +44 (0)7789 294040 or +44 (0)7825 092886

London has cemented its place as the fastest-growing commercial centre in Europe after take-up of office space reached 9 million sq ft so far in 2014 – already 16% higher than in 2013. The capital outpaced key cities across Europe including Paris, Amsterdam and Frankfurt with the cost psf in some of the capital’s landmark buildings almost double that of other leading European centres. The analysis points to a shortage of new space coming onto the market in the near term which is expected to push up headline rents further.Take-up in central London has been above the 10 year average for 6 consecutive quarters, with the London expected to surpass the previous peak of 12.7 million sq ft which was let in 2008, later this year.

Space under offer jumped by +32% in August, to stand at 4.53 million sq ft, a whopping 67% above the 10-year average and the highest since November 2000. According to Knight Frank, London’s office rents are predicted to grow by 16.3% over the next five years compared to 10.6% in Paris and 3.1% in Frankfurt.

Occupiers looking to take space in the capital’s iconic skyscrapers such as the Leadenhall Building or the Shard would have to fork out an average of $174 a year to rent psf, almost double that of Paris, Amsterdam or Milan. IPD/Collier’s latest annual report of West End Office Investment Report states that vacancy rates in the West End are now at 3.8% – their lowest level for 13 years, and the vacancy rate in central London has dropped to 5.7%. With top rents in core West End locations now reaching over £120 psf, occupiers are looking to new areas for high quality affordable space.

SO Advice founder and director Martin Halling said: “London never fails to surprise with its ability to generate and then accommodate soaring demand. The buoyant office market over the past 12 months has seen occupiers look away from traditional areas to achieve real value. Areas on the City fringe such as Shoreditch and Silicon Roundabout and the South Bank have grown to welcome this new demand. Canary Wharf has also seen a significant rise in activity in 2014.”

Notable deals in the past 2 months include Havas taking 158,000 sq ft at 3 Pancras Square, while Amazon took 431,000 sq ft at Principal Place in Shoreditch. Other notable deals include Lloyds Bank acquiring 72,100 sq ft at 125 London Wall, and media giant Omnicom under offer for 354,000sq ft of space at 2 & 3 Bankside. According to the latest Deloitte Crane Survey, the supply constraint is likely to continue in the near term. 45% of new space under construction is already pre-let.

In the Serviced Office market continued strong demand for flexible space has lead to significant growth of new centre openings in the Capital. For example Avanta have just signed a deal to open a state of the art 28,000 sq ft business centre at 5 Merchant Square in Paddington Basin, which is due to open in March 2015. This follows their other recent signing of a 26,000 sq ft business centre in Eagle Street, Shoreditch in September. Servcorp is expected to open its 11,000 sq ft serviced office in the Leadenhall Building next month.

SO Advice founder and director James Tatham added: “With supply looking to be constrained at least until 2017 and beyond, achieving real value can be difficult. However opportunities in London do still exist. Bankside has gone from strength to strength and with the new cluster which is beginning to emerge in Vauxhall there will be a new vibrant business quarter on the south-west side of London within the next few years”.

The BCA, the trade body for the serviced office and business centre sector has reported that serviced office operators in London report “Ongoing good performance and pricing. Performance indicators for The City remain positive and overall, Central London continues to attract high demand with strong occupancy rates, with demand still outstripping supply in specific locations.”

The BCA also noted a new trend of “Office to Residential” conversions leading to centre closures, and therefore a scramble for space in Greater London. This has particularly affected the secondary office market in the suburbs, with some Period, 1960’s, and 1970’s office space disappearing. In some cases, this has been fuelled by recent changes to government legislation, which temporarily dispenses of the need for formal planning applications for office-to-residential conversion. If you are a business then your half of the fee can be simply invoiced to us, alternatively we can pay retail vouchers of your choice to private individuals (i.e., John Lewis, M&S, etc).

If you have a client or a contact that is about to start their brand new serviced office search, then please contact us first. (nb: please note Terms and Conditions may apply). If you would like more information on any of the above, please contact:

James Tatham, Director
Tel: 07825 092886
Martin Halling, Director
Tel: 07789 294040

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