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Say Jones Lang LaSalle in annual Central London Office seminar held this week
London, 16th November 2012 - Over the last 12 months, London has continued to outperform as the most dynamic and desired of global cities but as pressures continue to mount at a global and local level, London cannot become complacent and must continue to evolve in order to remain the global city of choice.
Neil Prime, Head of UK Office Agency at Jones Lang LaSalle commented: “Even in the uncertain economic environment London remains the key destination for global capital flows and a place where occupiers can take advantage of the innovative and entrepreneurial environment that will drive their businesses forward.”
Looking at the leasing market, we believe that it is all about demand – structural, consolidation, expansion and migration. Secondary locations have seen the largest improvement and will continue to perform. Over the next 12-18 months we anticipate that pre-lets will return to the market as supply will remain constrained. Push and Pull factors will continue to dominate - traditional vs transitional, established brands migrating to the core, global demand for a London platform, and the emergence of new hedge funds and private equity as the banks continue to demerge due to regulation and rightsizing.
Dan Burn, Head of London City Agency at Jones Lang LaSalle commented: “The Outlook for the Central London market points toward an increase in rental growth in the second half of 2013 and a development response led by pre-lets. In the City market, despite some new schemes being delivered over the next 24 months, speculative development remains constrained. For a scheme starting demolition in Q1 2013 the earliest delivery date would be Q2 2015. Of increasing importance will be CRE teams as they will more than ever define “what, where & when.”
Jonathan Evans, Head of West End Agency and Central London Development said: “The largest catalyst of demand in Central London remains structural, however some of this demand is regearing on a short term basis (3-5 years) and at the larger end, this will only add to pent-up demand and will become the target for preletting opportunities. Residential conversions of the west end towers will pose a threat to tenants who want a view and this will lead to migration to the iconic towers being provided in the City, such as the Shard.”
Commenting on the future occupational trends and drivers, Lee Elliott, Regional Director EMEA research at Jones Lang LaSalle said: “The Central London market will be characterised by a more demanding demand-side over the medium term. Corporate real estate decision makers have a strong mandate from their senior business leaders to challenge the thinking underpinning property requirements. This will lead to more scrutiny on real estate costs; the contribution that property makes to corporate productivity and, ultimately, the location of that property. “
Turning to the investment market, London is the ‘Capital of Capitals’ in property Investment terms. It is the most traded global real estate market for a fourth year running and is the first port of call for cross border capital. The estimated Central London turnover for 2012 will be £16bn, a 35%increase since 2011 when £11.8bn was transacted.
This trend is not going to stop. Growth in demographics and increased saving rates will increase this trend as new overseas investors come to London.
Andrew Hawkins, Director – City Capital Markets at Jones Lang LaSalle commented: "With global domestic savings forecast to grow from £5 trillion in 2004 to £22 trillion by 2022 - we see prime and super prime yields hardening whilst the best investment grade stock will become more scarce."
Looking at the prospects for the wider economy, Andrew Burrell, Head of Forecasting at Jones Lang LaSalle said: “London has been more resilient than the UK in the downturn. There remain short-term challenges, but the capital is forecast to out-perform other major global office centres on job creation over the longer horizon.”
The dynamics and influences on London’s office market are varied and although short-term challenges remain, London is in a good position to outperform. Prime concludes: “Our views on the prospects for the Central London office market remain positive, particularly the capital markets and increasingly the occupational markets. Whilst economic uncertainties remain, the competitive fundamentals of London are strong.”
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