Skip Ribbon Commands
Skip to main content

News Release


City on track for strongest year of take up since 2006, investor sentiment strong and activity in fringe areas increasing

Says Jones Lang LaSalle’s latest Central London market update

London, 1 October 2013 – Jones Lang LaSalle’s latest research signals accelerating economic recovery, as the latest data for Q3 shows that the City of London is experiencing strong growth in take up of office space, with 5.1million sq ft let since the start of 2013 and a further 1.2million sq ft under offer.

Activity in the City to end Q3 has already surpassed 2012’s full year total of 4.16 million sq ft, and is on track to exceed 6million sq ft by end year and  record the highest total since 2006.

The West End market is also looking increasingly strong, and has seen a number of large requirements looking to transact, with 2.6 sq ft let in the year to date and 725,000 sq ft under offer at end Q3, and increased interest from the financial services sector.

London CityscapePrime rents are beginning to respond to improved occupier demand. Rents in the City increased to £58.50 per sq ft this quarter, up from £55.00 a year ago, an increase of 6.4%. Rents in the West End increased to £100 per sq ft, the first time they have hit the £100 mark since 2008. 

Few options for occupiers in the West End and City core has resulted in increased popularity of fringe locations with occupiers, which has led to strong growth in rents in several sub-markets, including North of Oxford Street and Soho.

In the investment market, prime yields continue to come under pressure with the benchmark West End yield dropping to 3.75% this quarter, only the second time on record that the yield has dropped below 4.0%, the last being in 2006-07.

While yields are low, prime office capital values remain 15-20% lower than the peak levels reached in 2007, and investors are increasingly buying in anticipation of rental uplift which will drive further value growth.

The continued migration of occupiers to fringe locations has encouraged investors to focus more attention on these areas, resulting in a narrow margin between yields in core and fringe sub-markets. Investors are targeting stock that they believe will benefit from rental growth in coming years, and are selective. Stock that does not meet this criteria sees less interest from buyers. 

Investment volumes picked up strongly in Q3, and now stand at £10.1 billion in the year to date. While down slightly on the level of activity in 2012, investor appetite remains strong reflecting broad based foreign and domestic interest in the London market and increasingly active UK funds.

Neil Prime, Head of Office Agency at Jones Lang LaSalle said: “The City office market continues to show signs of recovery with take up already higher in 2013 than it was for the whole of 2012. Encouragingly we have seen increased activity from the financial sector which hadn’t been the case in recent history.

It is the financial sector that drives our market and we anticipate upward pressure on rents to become greater towards the end of the year as the stock of grade A offices continues to reduce. It looks like the tipping point of the market is close as even with increased take up, we are seeing strong demand replacement occurring against a backdrop of finite supply of high quality offices.

“High demand is mirrored in the West End, where transactions are 26% up on last year with active demand remaining steady, currently at 3.2 million sq ft.”

Damian Corbett, Head of Central London Investment at Jones Lang LaSalle said: “Yields have continued to shift inward in Central London, with prime yields hardening to 3.75% in the West End. This follows the City moving in to 4.75% in Q2.

“Investors are buoyed by the improvement in the occupier market and are factoring this into their decisions on where to invest, with increased interest in fringe locations being one consequence of this.

“The investor base is well educated and buyers continue to be selective, targeting assets positioned for future rental uplift. We’re finding that in some areas traditional investors are being pushed out due to the amount of overseas investment, although UK funds have made a comeback recently.”

Chris Holmes, Head of UK Debt at Jones Lang LaSalle Corporate Finance said: “There has been a continued emergence of institutional money in Q3, mostly consisting of North American, UK and German lenders.

“Attitude to risk has become more positive throughout Q3, with an increasing number of parties willing to underwrite debt positions of £150million plus and sustained interest in speculative developments with high degrees of leasing risk.

“On the whole, 2013 debt targets for many institutions have not been reached, which will result in a further tightening of margins at around 175 basis points throughout Q4 , which is a prime benchmark for Central London.”

Ben Burston, Head of UK Offices Research, Jones Lang LaSalle said: “Our latest analysis of the Central London market builds on the strong recovery we identified in Q2, led by surging leasing activity in the City. After two years of subdued take-up, market activity has accelerated rapidly in the past six months with improving business confidence leading to the release of latent occupier demand.

“In the investment market, yields continue to trend inward in spite of the increase in long term interest rates we have seen in recent months. Investors are clearly more focussed on the positive outlook for rental growth and are willing to pay a premium to access stock that is well-positioned to benefit from the expected uplift.”