Capita’s Q1, 2014 Central London Overview report shows availability for the whole of Central London has fallen by 7% in the last quarter against increased take up year on year of 11%.
Central London’s restricted development pipeline is beginning to impact on availability. The City market has seen vacancy rates drop 1% over the last 3 months to 8.4% while Midtown fell 0.8% to 5.5%, making it the lowest in Central London.
As supply falls tenants with larger requirements on the horizon are snapping up pre-lets in all London’s sub markets. Take up in Q1 2014 has included a number of particularly large pre-lets in Docklands and the City Fringe.
In the West End concerns over the supply of Grade A space is fuelling a steady stream of pre-lets and a growing number of deals are surpassing the £100 per sq ft mark putting upward pressure on the prime rent which remains at £102.50 per sq ft.
Major pre-lets also dominated the City occupational market with developments such as Land Securities’ 20 Fenchurch Street, EC3 now 87% pre-let following three lettings this quarter totalling 95,000 sq ft to Allied World Assurance Company Limited, Jane Street Europe and Vanquis Bank. Both ING and Schroders have finally secured new London HQs after waiting over four years, pre-letting 130,000 sq ft at 8 Moorgate and 310,000 sq ft at London Wall Place, respectively.
Recent pre-let activity will encourage developers in all Central London locations to push the start button on refurbishment and development projects. Falling supply, increased demand and pre-letting activity has resulted in Capita increasing its prime City rent by Â£2.50 per sq ft this quarter to Â£60.00 per sq ft.
Capitaâ€™s City Agency team
Capita’s Q4 2013 report predicted a new wave of fringe markets increasingly merging into the mainstream. The first signs that Stratford will become a credible option for Central London occupiers are beginning to be felt with the first phase of the 130,000 sq ft One Stratford Place nearing full occupancy and the FCA agreeing a pre- let of close to 420,000 sq ft at Lend Lease’s Stratford International Quarter. The eastern City Fringe sub market is also one to watch as it undergoes significant redevelopment with speculative schemes such as Aldgate Tower and One Commercial Street. Transport links to the area, while not currently as efficient as Stratford or King’s Cross, will improve significantly from 2018 with the opening of the Crossrail station at Whitechapel.
The appeal of the Central London property market continues with investment turnover only restricted by supply as owners struggle to justify selling when values are expected to rise further.
UK investors now look more competitive against overseas investors accounting for 53% of all purchases in Q1. This could be a significant change with overseas investors having previously accounted for more than 50% of purchases by value in 17 out of 21 of the last quarters.
irector of Investment at Capita
While the market anticipates possible restrictions from Westminster Council on the ‘change of use’ planning laws on buildings within the West End, the attraction of office buildings with the potential for conversion to residential accommodation continues to draw strong competition. Two such properties were sold this quarter in Victoria at 1 Queen Anne’s Gate Buildings, Dartmouth Street for £42.1m,15% above the £36.5m asking price and 14 Great Peter Street for £32.4m, 54% above the £21m asking price.
As is often the case after a buoyant Q4, in Q1 only a limited number of deals broke the £100m mark. The largest single transaction for Q1 was Berlin Doctors Pension Fund’s acquisition of 60 Holborn Viaduct, EC1 from AXA for £245m. Other significant transactions were the Hyperion Portfolio acquisition by Legal & General for £550m of which £260m was property in the West End and 2a Southwark Bridge Road, SE1 bought by M&G for £122m.
Mercer continues: “We have seen UK investors compete strongly with overseas buyers over the last three quarters. Whilst we don’t expect overseas demand to diminish, a strengthening pound and the attractiveness of other property markets around the globe which are perceived to offer greater returns - albeit with potential for greater risk, may start to swing this trend further towards UK buyers. We will be monitoring this trend closely over the course of 2014.”
Read the full report here.
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