Sustained rental value growth has been the predominant theme in the London commercial property market during the first quarter of the year. On the whole, Q1 2017 can be described as positive and with no significant changes with regards to the previous quarter.
London Office Market Q1 2017
Take-up rates in Central London doubled in Q1, reaching 1 million square feet in February. These were particularly high in Southbank, where vacancy rates dropped to their lowest point in the past 18 months, reaching 3.3 per cent. Central London take-up by sector remains unchanged, with media and tech occupiers on the lead, followed by the public sector, finance, and business services. Grade A vacancy rates ranged between null values in Aldgate to 15 per cent in Holborn.
Total availability increased by 4 per cent to 14.7 million square feet, although most supply is clustered around King’s Cross, Paddington, Stratford, and London Bridge.
Rental values grew by 0.2 per cent across the city. The lowest average rents are currently £40 / sq ft in Stratford and £47.50 in the Docklands, whereas the highest are in St James and Mayfair (£110 / sq ft), Soho, Belgravia, and Knightsbridge, ranging from £85 to £87.50.
However, the introduction of higher business rates in April may reverse the generalised upward trend. This will be most evident in the legal sector, which has also been affected by increases in annual rent costs, reaching 5 per cent over a five-year period. The business rates revaluation may lead to a decreased enquiry volume in sub-markets affected by the sharpest increases, namely Clerkenwell, Camden, Shoreditch, King’s Cross, and West City.
London Retail & Specialty Q1 2017
Towards end of the quarter, the UK emerged as the most popular destination for retailers with ambitious expansion plans, since approximately 65 per cent of those interviewed had Great Britain as their destination of choice. London continues to be a prime spot for international retailers, although cost increases may act as deterrent later in the year.
In the specialty commercial property market, the most notable transactions included the sale of South Place hotel, acquired by overseas investor. The hotel sector has high growth potential due to low interest rates and attractive risk-adjusted returns.
London Industrial Q1 2017
The industrial sector has outperformed all other commercial property sectors for six consecutive months. Rental growth rates in Q1 averaged 0.5 per cent, and this sub-market continued to reflect nationwide trends, the most notable of which are the imbalance between supply and demand (which is well into its third year), the emergence of retailers as the main industrial and logistics occupiers (mostly due to the sustained growth of e-commerce), and a rapid increase in the time elapsed between completion and move in date: in 2009, nearly 10 per cent of industrial tenants moved in within 6 months of development completion, but the figure is now down to 3.6 per cent.
Record rents were achieved in Park Royal, northwest London, where they reached £17.25 / sq ft or £4 million / acre. This was followed by notable price increases near Heathrow, Acton, and Staples Corner, where rental values average £2.5 / acre.
The most important industrial transaction during Q1 2017 was the sale of Northfields Industrial Estate, a 21-acre brownfield site located in Brent (Harrow). This has become the largest development deal outside of Central London since June 2016.
Sources:
(1) http://www.cbre.co.uk/uk-en/research
(2) http://www.colliers.com/-/media/files/emea/uk/research/offices/201703-southbank-sub-market-analysis1.pdf?la=en-GB
(3) http://www.colliers.com/-/media/files/emea/uk/research/offices/17001-londonofficessnapshot-january2017-v8web.pdf?la=en-GB
(4) http://www.propertyweek.com/data/data-by-uk-region/london/central-london-office-take-up-nearly-doubles-in-february/5088188.article
(5) http://www.gva.co.uk/uploadedfiles/GVA_UK_Research/2017%20London%20-%20Where%20we%20work -%20changing%20nature%20of%20central%20London office%20demand%20Spring%202017.pdf
(6)http://www.thelevygroup.london/blog/wp-content/uploads/2017/04/Wheres_Hot_And_Not_Q1_2017.pdf
(7) http://news.cbre.co.uk/law-firms-set-for-an-active-year-despite-rising-costs/
(8) http://www.gva.co.uk/uploadedfiles/GVA_UK_Research/2017%20London%20-%20Where%20we%20work%20- changing%20nature%20of%20central%20London office%20demand%20Spring%202017.pdf
(9) http://news.cbre.co.uk/the-uk-leads-the-way-as-most-popular-destination-for-retailer-expansion-in-2017/
(10) http://news.cbre.co.uk/cbre-advises-frogmore-on-sale-of-south-place-hotel-in-london/
(11) http://www.cbre.co.uk/uk-en/research
(12) http://www.colliers.com/-/media/files/emea/uk/research/speciality/201703_industrialandlogisticsbarometer.pdf?la=en-GB
(13) http://news.cbre.co.uk/cbre–advises-segro-on-sale-of-northfields