Q3 2020 Central
While leasing activity remains subdued, the investment market has picked up, with a strong fourth quarter expected. But how have the lockdown measures over the last three months affected the Central London office market?
The number of Covid infections has risen sharply over the past few weeks. National social distancing measures will remain largely in place for the next six months, with a four week national lockdown coming into effect on November 5th. Assuming infections have fallen over this period, the country will return to more localised lockdowns via a three-tier system, with Greater London placed in the high alert tier. The government's Coronavirus Job Retention scheme has been extended for the period of national lockdown, but this is unlikely to prevent further job losses once the scheme ends and unemployment is expected to rise.
The economic outlook is dependent upon the trajectory of the virus over the coming months and the measures taken to limit its spread. GDP forecasts were revised downwards for the final quarter and into 2021 against a background of the second wave of Covid and Brexit uncertainty. Oxford Economics’ latest forecasts show that the UK’s economy could shrink by 9.6% during 2020 but a loosening in restrictions from mid-2021 could trigger a strong rebound of 7.4% for 2021 which is well ahead of the Eurozone average of 5.5%. Built into the forecasts are the new EU-UK trade relationships which will become operational from January 2021 and which, at the time of writing, are still being negotiated, but any impacts from the four week lockdown have not yet been factored in.
The leasing market remained subdued as the impact of the pandemic continued to influence occupational decision making. Just 941,000 sq ft was let during the quarter, which was down 20% on the previous three months and was the lowest quarterly total since Q1 2009. This brought the year-to-date total to 3.8 million sq ft, which was 60% down on the same period last year and 6% below the previous Q1-Q3 low recorded in 2009.
The investment market saw a resurgence in activity during Q3, although this was from the record low seen in Q2. Over £1.0 billion of transactions were completed in Q3, which takes the annual volume traded to £4.1 billion. This compares to £7.4 billion in the same period in 2019. Full year volumes are expected to be boosted by a strong fourth quarter with some sizeable deals having already exchanged and circa £3.0 billion worth of stock currently under offer.
Read more about London's office market in our Q3 2020 report.