London prelet 21st May 2012

Preletting activity is making up an increasing part of take-up in the central London office markets, reports Cushman & Wakefield. According to Cushman’s The Return of the Prelet report, prelets are becoming more dominant as supply is edging downwards in certain submarkets against a backdrop of low levels of speculative development activity due to be delivered between now and 2015.

Despite total central London take-up in 2011 being lower than in 2010, signed prelets account for a higher proportion of take-up (18%) than the 15% seen on average between 2002 and 2011 and this has continued into 2012. Cushman writes: “What is apparent is that occupiers are looking for efficient, quality space but with a focus on cost effective buildings. There is evidence that occupiers are becoming less tied to location and more focused on these new submarkets. "Of the prelets signed since January 2011, just one building is located in the core with the remainder for buildings located in the rising submarkets, including Southwark and King’s Cross.” Cushman writes that there was an increase in the number of prelets in the market in 2011, compared with 2010.

There were seven prelet deals over 50,000 sq ft in 2011 - equal to the last two years combined. There have already been a number prelets signed in Q1 2012 including Burberry at 1a Page Street and Savills increasing their commitment at 33 Margaret Street. Cushman adds that several other companies are rumoured to be considering prelets across both the City and West End including Google and Markel. While the major prompt for considering a prelet has been a lease event, the majority of occupiers have taken the opportunity to consolidate several functions into one building. Active demand across Central London has increased 6% over the last 12 months to stand at 8.7m sq ft.

Currently, decision making is being delayed as a result of economic conditions but new enquires are emerging “even in these challenging times”, reports Cushman. Already in 2012, 1.5m sq ft of new active enquires have come to the market. There are a total of 33 active and potential requirements in the market today, searching for 50,000 sq.ft plus of space across the West End, which C&W anticipate are currently or who may consider a prelet. Cushman writes that preletting picked up markedly in the second half of 2011 and it expects to see more prelets in 2012, as business sentiment starts to pick up combined with an increasing number of lease events on the horizon.

Cushman adds: “The lack of immediately available large scale supply in a number of submarkets around Central London will also influence property strategy and many occupiers will be faced with a choice of considering alternative locations or a prelet (or a combination of both) to satisfy their needs. “With cost still a key driver for many companies property decisions, combined with a demand profile dominated by Media and Telecoms companies, we expect the rising submarkets including Southwark, Clerkenwell, Shoreditch and Camden to be the beneficiaries.”