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News Release

London

Increased mobility of Central London occupiers pushing the boundaries of the office market, with investment market set for another strong year says JLL


LONDON - 28 March 2014 - Central London offices research released today by JLL indicates an increase in occupier mobility, combined with an investment market which is maintaining momentum as quarter 1 (Q1) 2014 draws to a close.


The volume of both leasing and investment activity has slipped back in Q1 after a rush of large deals in the second half of 2013, but the underlying fundamentals remain sound, with strong demand from occupiers and investors for Central London office space.

Office take-up is likely to reach around 1.7million sq ft in Q1, dropping back from 2.7 million sq ft in Q4 2013, but there are a number of significant requirements under offer which should boost activity in Q2. The trend to pre-let has remained strong throughout Q1 2014, signalling the strength of the market. Larger occupiers are becoming less focused on location and driven more by the quality and availability of supply in their search for office space.


Demand from investors for Central London office stock remains very strong, with new potential buyers continuing to emerge. Trading volumes were relatively thin in Q1, with approximately £1.8billion transacted to date, but it is expected that the strength of demand will help bring more stock to market as the year goes on, which will support activity. 


Neil Prime, Head of Office Agency at JLL said: “The increasingly constrained supply in all submarkets is resulting in many larger occupiers looking across Central London in order to satisfy their real estate needs in terms of the type of office they are looking for, at a price that fulfils their financial needs. As a result, it’s is less about the City or the West End, it’s all about Central London as a whole, including the emerging markets to the  north, south and east.

“We saw the levels of migration increase during 2013, largely from the West End, with the key beneficiaries being Regent’s Place, Kings Cross, Farringdon and Shoreditch to the north of the core markets, London Bridge and Bankside in the Southbank and Midtown generally. This trend will continue, and occupier migration is definitely pushing further eastwards and we have already seen a significant level of transactions happening at Canary Wharf. This trend will continue until we see a return to higher levels of speculative delivery across Central London. The case is compelling for developer/investors to do so and critical for occupiers that they do.


Damian Corbett, Head of Central London Capital Markets at JLL said: “While trading volumes have tapered off in Q1 after a rush of large deals in the second half of 2013, investor demand for Central London office stock remains very robust. The market is underpinned by a healthy occupier market, which offers prospects for rent driven capital value growth over the next few years. Reflecting this, asset management plays are highly sought after, especially by UK funds and property companies. The market is also supported by improving credit conditions, with more favourable terms on offer than this time last year.


“As the year progresses, we expect trading volumes to accelerate once more, as rising values motivate sellers to bring more stock to market. Demand will still out-strip supply however, and we expect yields to remain firm, with potential for further compression for best assets.”

Ben Burston, Head of UK Office Research at JLL said: “The economic picture continues to be supportive, with stronger than anticipated employment growth and rising business investment feeding through to the occupier market, in turn underpinning investor demand.


“Despite strong growth during 2013, rents and capital values remain below previous peaks and we expect further growth in 2014. Demand for best-in-class office space has run ahead of supply, and with London set to keep expanding rapidly, it will take time for this balance to be redressed through increased development and expansion to new districts.”