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News Release

London’s office market fundamentals highlight need to put doom and gloom views in perspective

London, 24 November 2017 - JLL's latest data and market analysis challenges the negative sentiment from some commentators to uncover the real health of the central London office market

- Despite some commentators heralding a severe economic reverse, office market fundamentals paint a very different picture
- Investment into London office property has surged this year reaching £12.5 billion by the end of Q3, the strongest first nine months on record and 44% up on last year
- 2017 central London office investment volumes are predicted to hit £18 million - one of the highest ever years
- Prime yields and capital values have remained stable - London yields highest of all global gateway cities
- While there is continuing uncertainty about the flow of financial services jobs out of London, the extreme downside risk to BREXIT related jobs is, we believe, overstated
- Previously office rents rising at too fast a rate have set up the conditions for a market correction, this hasn’t been happening. Rents have been stable the last two years and once longer rent free periods has been factored in, rents in real terms have already undergone a mild correction
- There just isn’t the aggressive oversupply of office space witnessed before previous corrections. Vacancy remains low and the likely delivery of office space due onto the market between 2018-20 is modest
- There is only 12.1 million sq ft in the development pipeline for 2018-2020, of which 44% is already pre-let, compared to 35 million sq ft back in 1990-1992
- Wider office take up remains positive with 11.3 million sq ft being taken up in the last 12 months beating the 10-year average of 9.9 million sq ft while vacancy remains at 5% below the 10-year average

Neil Prime, head of Central London Markets at JLL, concluded: "Amidst all the Brexit noise, negative political sentiment and pessimistic forecasts, there is some uncertainty but Central London office market fundamentals remain sound in terms of supply. We are seeing new sources of occupier demand from life sciences and sustained activity from the TMT sector which will offset financial sector weakness.

“London remains attractive to global capital and the flood of money from Hong Kong has not slowed.  Nearly £1 of every £2 invested in London offices is from Hong Kong and this is unlikely to change in the short term. The weak pound will maintain the currency arbitrage play.

“In the current environment, the market looks stable and whilst unlikely to deliver widespread growth, an increase in office rents is forecast to return from 2019.  Office occupiers will seek flexibility, employees will seek the best places and location and asset choice selection will be key to investor performance.”