Here are the six charts you need to understand the London office market.
Another above-average year of take-up in the London office market masked availability falling to historic lows, a large rise in rents and new sub-markets making real inroads into the City and West End’s share of the market.
Estates Gazette explains the key drivers of take-up in the market, using data from its London Office Market Analysis.
1. Annual rolling take-up
Take-up in 2015 was above the long-term of average of 11.8m sq ft, though this was down slightly from 2014’s high of 14.5m sq ft. Generally, demand remained robust from occupiers across the markets, but there were growing indications of it tailing off towards the end of the year – a factor of high rents, economic worries, and increasingly tight supply.
2. Take-up by market
As usual, the lion’s share of take-up was seen in the West End and City markets, which combined accounted for 53% of let space.
However, this has dropped from 60% five years ago, with occupiers being increasingly footloose. The City Fringe now accounts for 16% of the market, up from 13%, and Midtown 18%, also up from 13%.
3. Which market has seen the highest growth?
By sub-market, the biggest increases in take-up occurred in the City Fringe, Docklands and Midtown markets, all of which saw take up of 25% above the five-year average. While the Docklands was partly skewed by an extremely large letting, all three markets, to a lesser or greater degree, saw demand increase owing to a shift among occupiers away from traditional markets, where rents were rising rapidly or availability was at extremely low levels.
4. Why the shift away from core? Rents
Demand has been driven partly by the affordability of rents – though this has been tempered in the City Fringe by demand for “cool” space too.
However, since its emergence as an office market in its own right, the City Fringe been a victim of its own success, with headline rents for new-build space rising by 42% in the past two years.
5. Why the shift away from core? Availability
Rents were not the only driver – extremely low availability also played its part in pushing occupiers out of their conventional spaces. But by the end of 2015, all sub-markets were seeing availability at levels well below the five-year average, meaning that 2016 could be an even more difficult market in which to secure space.
6. Which sectors were accounting for that take-up?
It was no surprise that TMT tenants accounted for the majority of take-up by space.
However, almost all agents reported a substantial rise in serviced office take-up across the core markets.
7. Looking elsewhere?
The end result of all of this was that two of the key deals of the year were not even in central London.
The FCA’s and TfL’s moves to Stratford in east London heralded the emergence of a new London office market, and also illustrated that rising rents and low availability in the centre would lead to more tenants looking to new fringe markets.
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