City transaction levels rose above average after a poor Q1, but West End volumes fell to a 30-month low. Regardless, across London, pre-letting activity rose to a 12-month high, boosted by EBRD’s (European Bank of Reconstruction & Development) decision to pre-lease 365,000 sq ft of space at 5 Bank Street.
Colliers says never ending political uncertainty is accentuating the volatility across occupational markets, although transaction levels still appear to be on course, in 2019, to match the long-term trend.
“Stable levels of take-up, coupled with sluggish delivery of new supply, meant that London-wide vacancy dipped below 5% for the first time in over two years. New/refurbished availability was broadly unchanged quarter-on-quarter, albeit near 80% below the 10-year average. In contrast, second-hand availability fell by 8%, which was the largest quarterly fall for five years. A prolonged shortage of prime product now seems to be having a quantifiable effect upon second-hand vacancy levels.
“The supply pipeline remains extremely constrained. While construction levels have risen in 2019, it is pre-letting activity that is mainly responsible, enabling commencement of larger scale projects. Paradoxically, at the same time, the very nature of pre-letting is eroding the available pipeline further.”
Since 2000, average annual speculative completions across London have totalled 2.9 million sq ft, according to Colliers. Currently, totals for 2019-2020, even combined, will still undershoot that figure. The recent trend of improving financial services demand has been firmly realised in 2019, with 32% of named take-up deriving from that sector in the year-to-date. The financial services sector has accounted for over 1.5 million sq ft of take-up in 2019, with the nearest sector, Media and Tech, down at 765,000 sq ft.
Flexible offices stands at over half a million sq ft in 2019 as at the end of Q2, but a further 600,000 sq ft is believed to be potentially under offer, with WeWork, in particular, looking at large-scale opportunities, akin to its recent subletting ofEMA space at 30 Churchill Place, E14. Flexible providers are finding it harder to secure space
in the core markets, but where landlords and tenants are looking to mitigate voids and overheads, they are still finding traction.
“While anecdotal evidence suggests that the time is ripe for rental uplift, the only firm evidence of pricing movement comes from a moderating of incentive packages. We still expect to see pockets of positive rental movement during H2 2019.
“As at the half year, London investment volumes have struggled to reach £5.5 billion, which puts it over 20% down year-on-year. Shortage of stock and overseas capital have been the prevailing trends, although H2 2019 should reinforce evidence of a return of Asia-Pacific capital into the market.”