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Says Jones Lang LaSalle’s latest Office market research
London, 18 September 2013 – According to Jones Lang LaSalle’s latest Western Corridor research, occupier demand is increasing, with 2013 take-up set to substantially exceed the five year average of 2.1 million sq ft.
Large scale requirements have returned to the area with named active demand exceeding 4 million sq ft, while the volume of Grade A supply is 15% below the 10 year average. In response to this, development activity across the region has grown, particularly in West London, and enthusiasm for speculative development has continued to gain momentum. At mid-2013 there was 815,700 sq ft of space under construction on a speculative basis, two thirds of which in the West London market.
The Western Corridor investment market has remained buoyant, with demand outstripping supply and increasing interest from overseas investors.
James Finnis, head of South East Office Agency, Jones Lang LaSalle said: “Demand strengthened in the first half of 2013, buoyed by a number of large deals, with around 30% of space taken involving units greater than 50,000 sq ft. We are expecting a further surge in occupier activity during Q3, resulting in the best take up figure for 5 years.
“The Thames Valley accounted for over half of total take-up in H1, with West London seeing the greatest share of Grade A take up, and Heathrow seeing the most activity, which was significantly boosted by BP’s 135,000 sq ft pre let at SWIP’s Building 2, New Square, Bedfont Lakes.
“Looking forward, we expect H2 to be boosted by a clutch of major acquisitions which were committed during early Q3, with a marked return in pre-letting activity. Together, these deals total 625,000 sq ft, and illustrate the growing confidence of corporates and increasing awareness of stock shortage.”
Angus Minford, head of South East Investment, Jones Lang LaSalle said: “Investment activity was buoyant in the first half of 2013 with £556.5 million transacted in the Western Corridor, almost the equivalent to 2012’s full year total. We can attribute this growing amount of money targeted at the location to continued improvements in the occupational market and a lack of investment in stock in Central London.
“UK institutional demand has remained strong, which is coupled with growing interest from overseas investors. The market has been buoyed by a number of larger transactions during the first half of this year but the concerns going forward remain over the stock availability especially at the prime end.
“Prime yields moved in by 25 basis points in mid-2013 to 6.25% for both West London and the Thames Valley and have since moved a further 25 basis points to 6% over the summer. We expect prime yields to continue to sharpen, given the levels of demand.”
“The secondary markets continue to grow in popularity as investors are prepared to consider riskier product against the backdrop of the positive occupational market.”
Ben Burston, head of UK Offices Research, Jones Lang LaSalle said: “Demand for space in the Western Corridor is coming from a broad sectoral base, including the TMT, energy and pharmaceutical sectors which account for around one third of total demand. These sectors have established clusters in the Western Corridor, with many occupiers continuing to favour the proximity to both Heathrow and Central London, along with access to a talented employee base and large floorplates available at more affordable rents than in Central London.
“The TMT sector has been the real emergent force over recent years, and with the South East the leading UK region in terms of the number of patents granted, we expect a significant proportion of these emerging businesses to choose to locate in the region to benefit from this strength in innovation, building on a strong foundation with many large hardware firms already based in the Western Corridor.
“As the economy recovers, we expect strength in occupier demand from the energy sector, and that this demand will increasingly be associated with the rise of gas as businesses and consumers continue to substitute away from oil. “In the pharmaceutical sector, large firms are being impacted by the patent expiry cliff, which is forecast to slow revenue growth in the sector and may lead to consolidation and outsourcing activity. Smaller firms may benefit as they seek to capitalise on the next wave of product development.”
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