Central London office news 29th December 2014

Investment volumes in Central London are set to hit £18bn in 2014, down on last year’s total of £18.4bn, despite the sale of high profile assets including HSBC Tower, New Scotland Yard, The Gherkin, and 10 Upper Bank Street.

According to JLL's latest report investor demand remains high, with yields trending inwards throughout the year. City yields have fallen to below 4.25%, down from the end 2013 level of 4.75%, JLL reports. In the leasing market, take-up across Central London is predicted by JLL to hit 11m sq ft by year end, boosted by significant pre-leasing activity across all markets. Take-up in the Docklands has seen the strongest growth this year, more than doubling to 1.2m sq ft, led by large deals to EY and Societe Generale. Deals to Google, Estée Lauder and Havas have led the way in the West End, while the City has been boosted by recent lettings to Amazon and M&G Investments.

Active demand across Central London now stands at over 10m sq ft, increasing from 2013’s year-end total of 8.4m sq ft, indicating that take-up will continue to be strong throughout 2015, reports JLL. Damian Corbett, Head of Central London Offices Capital Markets at JLL said: “This has been an outstanding year for high profile assets coming to the market, signifying confidence in the Central London offices market, which has been buoyed by leasing fundamentals. There has been no let-up in demand this year, with London capturing a disproportionate share of global capital flows, in particular from sovereign wealth funds and insurers. “Overseas investment remains a strong theme, with institutional buyers from the Asia Pacific region continuing to be a real force in our market. Over the past two years, investors from the Asia Pacific region have accounted for around £7bn of direct purchases, more than double their total investment in 2011-12.”

Neil Prime, Head of UK Office Agency at JLL, said: “It has been another strong year of leasing activity across the whole of Central London and yet as 2014 draws to a close demand levels are higher than they were at the start of the year. The strength of demand is driving strong positive net absorption and the expansion of Central London into markets which used to be termed fringe. While this demand picture is very encouraging, a lack of available new supply combined with limited speculative development, particularly in the City, is becoming a real issue and the market will tighten further in 2015. "As a result, we expect occupiers to continue to resort to pre-letting as a way of solving their real estate needs, although the letting of space under construction is eroding an already limited pipeline of supply for future years. Occupiers will increasingly focus next year on those markets with available supply or supply that is under construction such as City core, Victoria and Canary Wharf.

We expect to see strong rental performance across all markets.” Ben Burston, Head of UK Offices Research at JLL said: “As we predicted, the downward pressure on yields has continued this year, driven by the weight of money targeting London office investment. While yields are getting tighter, they are also at low levels in other global cities and London continues to compare favourably given its strong rental growth outlook and the powerful combination of transparency, liquidity and an investor-friendly market structure.”