Central London office leasing volumes remain resilient

JLL has revealed that leasing activity over the summer remained resilient as 2.2m sq ft of office space in Central London was transacted within the third quarter of 2023. This represents a 10% increase on the previous three-months and the highest quarter of the year to date. However, these figures also highlight a 19% drop on the 10-year Q3 average of 2.8m sq ft. This takes the total amount of space transacted up to Q3 to 6.3m sq ft. 

According to JLL, occupiers continue to commit to new offices in the capital and highlighted that the amount of space under offer remained high with 3.4m sq ft in negotiation across the market. This represents a 13% increase on the corresponding quarter of 2022 and 24% on the 10-year average. Research showed that 81% of total space under offer is in core submarkets, up on the long-term average of 65%. JLL predicted that a significant amount of these deals that are underway will complete by year-end. 

The research also highlighted that active demand currently totals 11.5m sq ft – a 27% increase on the long-term average. JLL cited that requirements span all sectors as all categories of occupiers seek to upgrade their space with banking and finance accounting for the largest amount of active demand (38%) followed by the professional services (26%). Following subdued activity since the beginning of the pandemic, research also suggests re-activated demand from the TMT sector with further activity forecasted for 2024. Significant mandates for new office space across Central London include Visa, Mayer Brown, Janus Henderson, Next and NBC. 

Looking at inward investment into the Central London office market JLL’s research cited that investment volumes totalled £1.1bn for the third quarter of 2023 which brought the year-to-date total to £4.8 billion. 

Chris Valentine, head of Central London office agency at JLL said: "The market for best-in-class workspace remains resilient, as occupiers strive to obtain amenity-rich hubs in prime locations. This is particularly true for green buildings, as more and more occupiers sign up to net zero targets, coupled with fact that these spaces can support in a reduction in operating and energy costs. We continue to see strong rental activity in this “super-prime” category, with the best of the best commanding significant premiums. This will be a continuing trend and landlords will be rewarded for delivering high quality space with outstanding ESG credentials, despite the corresponding costs of doing so.” 

Julian Sandbach, head of Central London office markets added: "The combination of the interest rate rises and ongoing uncertainty surrounding the nature of office working, continues to have its impact on the investment market, with Q3 volumes particularly subdued. Given the data that is common between valuation levels and market pricing in more volatile markets, investors remain firmly focused on market opportunities where there is perhaps more certainty of a transactional event due to a range of pressures. JLL maintains an optimistic outlook, particularly that we believe London has seen the majority of value reduction and money rates have stabilised. As active demand from occupiers continues to increase, it is also clear as to the type of buildings that they wish to occupy and therefore investors wish to own. However, with the amount of new buildings being delivered due to a fall over the coming years, the relationship between supply and demand will only become more acute, pushing values positively. Institutional activity may be subdued for now, giving private investors the chance to step into the void, thereby capitalising on higher rates of return on prime assets in the current environment."