Office space in Central London 4th November 2015

Central London office vacancy rates fell to a 15-year low during the third quarter of the year, according to research from BNP Paribas Real Estate, supported by robust demand and restricted supply.

At just 4.68% of total stock, the level of supply was just 10.29m sq ft, equivalent to less than one years’ supply at current levels of take-up, according to BNP Paribas Real Estate.

Daniel Bayley, Head of Central London at BNP Paribas Real Estate, said: “With robust levels of demand and no further developments coming on stream this year rents are set to increase and occupiers are increasingly looking to future development pipeline to fulfil their property requirements. 

“Increasingly they are turning their attention to non-traditional and emerging locations away from the core areas to satisfy their requirements in terms of space and value.”

During the third quarter of 2015 London’s office market saw a continuation of the above average levels of leasing and investment activity that was witnessed in the first half of the year.

Take-up to end September reached 10.78m sq ft, 18% above the long term trend, whilst the investment volume of £11.91bn is 28% ahead of the average. BNP Paribas Real Estate expects that the usual end of year activity will take leasing and investment levels further above trend.

“Activity in was very much boosted by pre-letting activity,” says Bayley, adding: “In total 13 pre-lets were recorded totalling 660,000 sq ft.  We expect that take-up levels of this magnitude will continue in 2016 as the development pipeline starts to deliver much needed new stock.”

Across London the investment market continued to be dominated by overseas buyers, who accounted for 64% of purchases in Q3.

Simon Williams, Head of Investment at BNP Paribas Real Estate, says: “On a global stage, London remains attractive for a number of reasons. With employment expected to grow by 6% between 2015 and 2019, and with no real immediate answer to London’s supply squeeze, we expect that strong prime rental growth will deliver robust annual average returns of 5.3% per over the next five years.

“Conversely, the continued demand for Central London assets also presents a rationale for some vendors, seeking profit from record capital values, to sell. A number of substantial assets are being prepared for sale later this year, which will undoubtedly contribute to above trend investment volumes in Q4.”