London serviced office increase 15th February 2016

The latest Central London Office Analysis by Bilfinger GVA reveals significant demand for space from serviced office providers during the last year (1.5m sq ft), accounting for 15% of take-up for the entire year.

The report shows that the sector is becoming increasingly important, with take-up figures from 2015 showing a 36% increase on 2014. Furthermore, take-up of space from serviced office providers last year was greater than that between 2009 and 2013.

Patrick O’Keeffe, Head of London Agency and Investment at Bilfinger GVA said: “The significant rise in take-up from serviced office providers indicates a seismic shift in the type of demand within the central London office market. “This is being driven by a growth in new start-ups and self-employment, a burgeoning technology sector and the changing demands of a young workforce which requires flexibility and opportunities for networking. The declining supply of small suites in the West End and City is also contributing to the increasing demand for serviced offices. In the West End, these smaller spaces have been lost to residential conversions, and in the City large developments are usurping smaller buildings.”

The report also shows that with such strong take-up in general over the past three years availability in London has decreased substantially, with levels as low now as they were at the trough of the last supply cycle. The market has also seen a considerably longer environment of low vacancy, resulting in a long-term period of rental growth. One of the recurring themes of this cycle has been occupiers’ demand to commit to space early and pre-let.

Pre-letting continued in 2015, however to a lesser extent, falling from 3.5 million sq ft in 2014 to 2.2 million sq ft. This can be attributed to a low development pipeline and developers’ increasing confidence in committing to speculative development. Certainly, occupiers’ demand for new space is not waning, with 3 million sq ft of newly completed space accounting for 30% of take-up for the year.

Prime rents in the West End increased slightly by 0.5% during the quarter, and 4.7% on the year. Whilst this is robust, it remains the weakest annual growth since Q2 2010. Mayfair and St James’s saw prime rents remain stable at £120 per sq ft. In what was a strong quarter for West London, Hammersmith, Kensington and Paddington all saw rental growth of around 5%. Across the City, prime rents increased by 2.4% during Q4 of 2015, up 10.5% on the year. This is the highest level of annual rental growth since Q1 2011. In Canary Wharf however there continues to be a wide disparity in asking rents between landlord space and space available on a sub-let from occupiers, and there is a belief that once the remaining occupier space lets, prime rents will increase sharply.

Throughout 2015, the investment market remained healthy, with a substantial amount of product on the market in Q4. Opportunities ranged from short-term income deals to value-added opportunities in multi-let buildings.

Chris Gore, Head of City Transactions at Bilfinger GVA, comments: “Much of the investment stock was an overhang of supply from earlier in the year when there was caution emanating from concerns over China and the Middle East. Assets, which had seen near misses earlier in 2015, finally traded in the final quarter.” He added: “Overseas money continues to dominate, accounting for 2.8 billion (64%) for the year. UK property companies and institutions accounted for £2.2 billion each of investment for 2015.”