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News Release

London

London office market to expand to new districts due to rising occupier demand and global investment outside traditional ‘core’ markets


​London, 14 November 2013 – Jones Lang LaSalle’s annual Central London Office Market  Seminar today revealed that occupiers are being forced to look beyond the traditional core areas of the City and West End when choosing an office location, due to constrained supply and a resultant rise in rents.

It was claimed that London’s status as a hub for international business has led to increased demand to locate in the capital, with leasing activity picking up sharply throughout 2013, resulting in rental growth tipped for £60 per sq ft in the City and £105 per sq ft in the West End by year end.

The drop in supply has created both an upsurge in pre-let activity as occupiers look to secure space and the need to look beyond the core to meet requirements. As a result, the London market will expand further in coming years, with Battersea, Royal Docks, Silvertown and Stratford set to develop into new London office locations.

Neil Prime, Head of Office Agency at Jones Lang LaSalle said: “The expansion of traditional office locations is not a new phenomenon and the market has grown substantially in the last 30 years, adding now-established locations such as Victoria and Canary Wharf.

“The motivation for new locations used to be affordability. Now, occupiers are looking to move to secure space they need, which is less available in the supply constrained core. Improving amenities and accessibility for employees is also becoming more important, with high quality retail and residential offerings becoming increasingly attractive. Areas such as King’s Cross, Southbank, Stratford tick all of these boxes so it’s no surprise that these are now on occupiers’ radars. These areas are complimentary to the core traditional markets as London expands.”

Investment volumes are on track for a very strong 2013 and could hit £17.5 billion by year end, close to record levels, if a number of large deals rumoured to transact close before year end. Yields are under pressure and are forecast to come in further in 2014 to 4.5% in the City in 2014 reflecting the weight of institutional capital directed toward the London office market and investors recognition of the positive outlook for rental growth.

Damian Corbett, Head of Central London Office Investment at Jones Lang LaSalle said: “London continues to be very high in demand with global investors, and rising domestic savings in many countries has led to an increase in assets under management from institutional and other investors. This has increased the focus on finding assets to invest in and will help facilitate the expansion of the investment market into new districts.

“In recent times districts such as Royal Docks and Battersea, have received heavy investment from Chinese and Malaysian buyers, mirroring occupier desire to look beyond the core.

“The growth in the market is underpinned by a more positive economic outlook which has resulted in a sharp increase in leasing activity. In turn, this pick-up in occupier demand also encouraged lenders back to the market. The majority of new occupier requirements beyond the core are footloose and will consider many more new districts in London to base themselves – local infrastructure, residential and leisure offer are key.’’

Ben Burston, Head of Central London Offices Research at Jones Lang LaSalle said: ‘The London market has quickly responded to the turn in economic sentiment, and a bright outlook heading into 2014 augurs well for future growth which will put further upward pressure on rents and capital values given the supply-constrained environment. We have revised up our forecasts, and anticipate that prime rents will growth to £130 psf in the West End and £75 psf in the City by 2017, growth of 30% and 28% respectively from their current level.

“Looking further ahead, the Central London office market will continue to expand into new districts, driven by London’s unrivalled global connections and ongoing urbanisation.”