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News Release


London office rental decline slows

According to Q2 2009 Jones Lang LaSalle Central London report

London, 8th July 2009 - Jones Lang LaSalle’s Q2 2009 Central London report shows that office rental declines slowed during the quarter with a 7% reduction in the City market and stability in the West End.  Neil Prime, head of English Markets Group at Jones Lang LaSalle said: “Occupier take-up rebounded from the record low of Q1 2009 with a 40% increase to 1.2 million sq ft.  This increase was assisted by the notable 180,000 sq ft deal to Bank of Tokyo Mitsubishi at Ropemaker, EC2 - in fact, the City of London was the only submarket to record an increase in activity. We predict that while rental falls will persist over the remainder of 2009 and during 2010, the pace of declines has already moderated.”
Prime headline rents remained at £75 per sq ft in the West End market but fell 7.2% to £45 per sq ft in the City and 5.9% to £40 per sq ft in Docklands.

 In the West End, just over 350,000 sq ft of space was let in Q2, reflecting a fall of 11% on Q1 2009.  Year to date take-up volumes were 750,000 sq ft, down 61% on the same period last year and the slowest first half of the year on record. In the City market, take-up volumes were almost double those of the first quarter at 835,000 sq ft.

 Damian Corbett: “Central London investment volumes increased for the first time in 15 months with a 58% quarterly rise to £1.3 billion.  Although year to date volumes are only 50% of those in H1 2008, activity levels have turned the corner and volumes should continue to rise over 2009 subject to the supply of product and continued demand.  During Q2 there was an international array of buyers; Middle Eastern money dominated with 43% of investment but there were also significant purchases by Israeli and German buyers.”

 The strong demand for certain product in London, coupled with restricted supply of product, led to yield compression for the first time since Q3 2006.  In the City, yields compressed by 25 basis points for lots both under £40 million and between £40 million and £125 million.  In the West End, 25 basis point compression was experienced for lots in excess of £80 million although the sub £10 million series remained stable at 5.50%.  Jones Lang LaSalle stated, however, that there were risks to these current yield levels as finance costs were increasing, Sterling’s appreciation made UK product relatively less appealing to overseas money and other European markets experienced value correction.

 Bill Page, Head Of UK Offices Research, concluded: “Despite some risks to yields in the short term, the outlook for London offices in the medium term is very good.  By 2012, growth in rental and capital values is expected to combine fuelling outperformance in total returns.  Investors entering the market this year, on the assumption that rental falls to date have already driven the majority of 2009’s negative performance, will enjoy compelling performance driven by returns in  2012 and 2013.”