According to the latest research data, during the third quarter of 2013 the commercial property market in the British capital continued to show signs of growth. These signs began to be evident earlier in the year, and in line with the forecasts, the market has continued to stabilise between the months of July and September.
Across all sectors take up figures have been on the rise, but particularly in the retail and office markets. With nearly 3 million square feet being taken up during this quarter, the availability of Grade A commercial space in London has recently hit a ten-year low. Following a period of generalised slowdown in economic activity caused by the recession, it finally seems that the commercial property market is on its definitive way to recovery. The positive signs are particularly striking when compared to the same period during 2012, as in the year to date take up figures for commercial property in London are 42 per cent higher than last year.
Despite the positive outlook, investors and occupiers remain cautious, and this has been reflected in the value of prime rents, which remain stable across the commercial property market in the capital. Other market indicators that are worth mentioning include the increased vacancy rates and supply indexes in the West End. This, along with low occupier demand and a very low volume of projects under construction, suggest that there is a clear preference for properties in The City and Docklands areas.
Key trends in the London office property market
Another key trend to highlight is the high volume of transactions that took place on a pre-letting basis. In central London, 26 per cent of all pre-lettings were taken up by companies in sectors like professional services, technology, media, and telecommunications (TMT). This is the case since companies involved in these sectors require larger office space, which is currently at a premium in The City unless the leases are agreed on a pre-let basis. Banking and finance are the other sectors that have been active taking up commercial office properties in the capital over the past three months. In the West End, take up is dominated by companies in the services sector. In this area, rents average £97.50 per square foot, whereas in The City they stand at £57 per square foot, and the values go down to £38.50 in the Docklands.
There is a number of projects under construction in the city’s development pipeline. These add up to a total of 6.8 million square feet, although they will only be completed over the next three years. Until this takes place, it is expected that the increased demand and low supply of quality office space in the city will cause occupiers to look at other sub-markets, most notably the areas around Southbank, Victoria, and the Thames Valley.
Currently, average vacancy rates across central London stand above 6 per cent, and it is expected that they will continue to decrease until the middle of 2014.
Facts and figures on the retail property market in London
Retail sales have been encouraging over the past year, and as the confidence of consumers consolidates, the demand for larger and better positioned retail properties increases. In fact, according to research carried out by Savills, commercial activity in the areas of retail and leisure is at its highest level since 2004. Retail rents in central London are still following an upward trend are their current annualised rate stands at nearly 6 per cent. Currently, the highest rental values for retail properties are in Bond and Regent Street.