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London, 12th April, 2010 — Jones Lang LaSalle has published its Q1 2010 Central London research. Neil Prime, Head of Markets at Jones Lang LaSalle, said: “This was London’s strongest first quarter since 2001. The total take-up of 3.5 million sq ft was 20% up on Q4 2009 and improvements were driven by the City which recorded the largest Q1 total since 2000. Across London, the 12 month rolling total of 9.7 million sq ft was just 5% below the 10-year average, while the City submarket ran ahead of the average.”
There was a note of caution, however, as occupier demand (requirements in the market) fell 18% over Q1 to 12 million sq ft. After a 17% increase in demand over 2009, this returned the market to Q1 2009 levels.
Neil Prime added: “In many ways, the reduction in demand was expected; the robust take-up witnessed would naturally erode the demand base. The level of new demand has not been sufficient to replace that demand we have seen transacting. We anticipate the demand this year will continue to be driven by structural events such as lease expiries and not by business expansion. Therefore even though replacement demand has been at its lowest levels since 2008, even with modest levels of take up during the course of this year, we anticipate the continued reduction of Grade A supply and therefore we will see continued rental growth. This supply led recovery will continue due to the lack of speculative development underway to be delivered in the next 2-3 years. This provides a real opportunity for developers to generate out-performance, however it will be a continuing concern for those occupiers wishing to relocate. The lack of supply particularly of large units of space will, we anticipate, lead to the return of the pre-let market.”
Bill Page, Head of EMEA Offices Research, continued: “Supply fell sharply over the first quarter; down 15% to 16.7 million sq ft. Grade A supply fell 20%. Overall Central London vacancy rates ended March at 7.7%, with Grade A vacancy at 4.2% - these were the lowest figures since Q1 2009. Eroding supply drove rental increases with prime headline rents growing 6% in the City market in Q1 - from £45 per sq ft to £47.50 per sq ft. Incentives, expressed as rent-free periods, also improved in landlords’ favour across the market”
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