Overview of London’s Commerical Property Market – 1st Quarter of 2013

According to the latest data published, during the first three months of 2013 the commercial property market in London has been characterised by a slowdown trend in the property take-up rates. As a result, the availability, vacancy rates, and number of properties under offer have increased, although yields on investment have generally remained stable. During this period, take-up rates for all kinds of commercial property in central London were 2.5 million square feet. This means that take-up has declined by 13 per cent when compared to the figures belonging to the last quarter of 2012 and to the ten-year average. Of these 2.5 million square feet, 1.6 million were taken up in the West End, while the rest belongs to commercial property taken up in the City. The City experienced the largest number of transactions, with 35 per cent of the total, followed by the area known as Midtown, which comprises the districts of Bloomsbury, St Giles, and Holborn. Transactions in this area accounted for 33 per cent of the total. Next is the West End with 26 per cent, and then Southbank (with 5 per cent) and the Docklands (with 1 per cent).

Commercial property availability figures rose by 4 per cent and now stand at 17.17 million square feet, which is in fact the highest figure that the market has experienced since 2009. The amount of available Grade B commercial floor space has also increased during this quarter, and is now 7 per cent higher than during the last quarter of 2012.

Approximately 2.5 million square feet of commercial floor space are currently under offer in Central London. Vacancy rates stand at 5.4 per cent, a figure that represents a reversal of the trend observed so far, in which the occupancy market had proved resilient to the pressures brought about by the recession.

Recent trends in the London office property market

The most important transactions that have taken place over the last quarter in the London office property market are the leases taken up by Google (which now occupies a 725,000 square feet property near King’s Cross), the Liberty Syndicate Management (which took up a lease for 66,300 square feet in Fenchurch Street), and Genesis Oil and Gas Consultants, which now have a 53,100 square feet office building in Saint Paul’s Churchyard.

When looking at office take-up rates more in detail, we can observe the following trends:

– in the City of London, the number of office properties under offer has grown by 52 per cent. Take-up for second hand floor space and pre-lettings is down by 32 per cent and 12 per cent in each case

– no pre-lettings have taken place during the last quarter in the West End

– on the other hand, Midtown London has experienced the largest amout of pre-let transactions in the city, but a substantial decrease (46 per cent) in Grade B take-up rates

– pre-lettings were also on the rise in central London, with a quarterly change of 89 per cent

– office property under offer in Southbank has increased by 62 per cent in the last three months

As there are almost 5.6 million square feet of office space on a lease that expires during 2013, it is expected that the number of available properties might increase over the course of the year. All of these potetially available properties are 10,000 square feet or larger. The current availability rates stand as follows:

– 9.5 per cent for office properties in the City of London

– 6.1 per cent in the West End

– 5.2 per cent in the area known as Midtown

– 8.7 per cent in the Docklands

– 12 per cent for offices in Southbank

– 7.8 per cent in central London

Availability indexes have increased in all areas except for the West End, where they have remained stable. The most noticeable increase has taken place in the Southbank area.

Retail property in London: mixed trends

The main theme that has dominated the retail property market in London during the first quarter of 2013 is an stagnating index of yields on investment. The current figure is set at 5 per cent, which is well below the 7.5 per cent forecast by market analysts.

The majority of retail investment transactions in London have been carried out by property companies and by Middle Eastern private investors, in contrast with the last quarter of last year, when most investment was carried out by retail dynasties.

However, demand for rental retail properties remains stable throughout the city, with some areas experiencing a remarkable growth in demand, such as Stratford and the N1 postcode.

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