2024-02-28-莱坊-The_London_Office_Market_Report_Q4_2023_13页_2mb

London Office Market Report Summary (Q4 2023)

Core Content

The London office market has shown signs of recovery in Q4 2023, with key themes including increased take-up, strong active demand, and a pickup in investment volumes. Despite the market's bifurcation by quality, the focus on high-quality spaces has driven rental growth and reshaped occupier demand.

Main Points

1. Take-Up at Five-Year High

• Total take-up: 3.92m sq ft, a 31.7% increase from Q3 and a 32% increase above the long-term trend.
• New and refurbished take-up: 2.59m sq ft, representing 66% of all lettings.
• Sector breakdown:
  • Financial services: 45% of take-up, driven by the HSBC pre-let of 520,359 sq ft at Panorama St. Paul's.
  • Professional services: 16% of take-up.
  • Technology, media, and telecoms (TMT): 11% of take-up, below trend due to absence of tech titans.
• Submarket performance:
  • City Core and West End Core led in take-up, accounting for ~55% of total take-up in Q4.
  • New and refurbished space accounted for a significant portion of take-up, while second-hand take-up declined by ~45% since the pandemic.

2. Active Requirements at a 10-Year High

• Active demand: 12m sq ft, 35% above the long-term trend.
• Large requirements: 50 requirements seeking over 50,000 sq ft, with 80% of these from occupiers expanding their footprints.
• Impact: This trend suggests positive net absorption in the market.

3. Supply Squeeze and Under-Supply

• Available floorspace: Slightly decreased to 25m sq ft, with a vacancy rate of 9.9%.
• Prime availability: 5.6% vacancy rate, indicating tight supply of high-quality spaces.
• Under-construction pipeline: 15.4m sq ft, expected to complete by 2026.
• Under-supply estimate: 5.3m sq ft of best-in-class space by 2026.
• Submarkets with potential shortfalls:
  • City Core
  • King's Cross/Euston
  • Clerkenwell/Farringdon

4. Resetting Prime Rents

• Rental increases:
  • City Core: £77.50 → £87.50 per sq ft.
  • West End Core: £140 → £150 per sq ft.
  • Clerkenwell/Farringdon: £85 → £90 per sq ft.
  • Southbank Core: £77.50 → £80 per sq ft.
• Rental growth outlook:
  • City Core: 4.2% annual growth.
  • Clerkenwell/Farringdon: 3.9% annual growth.
  • Southbank Core: 3.6% annual growth.
  • West End Core: 3.7% annual growth.

5. Investment Market Trends

• Investment volumes: £1.8bn in Q4, up 27% from the previous quarter, but still 50% below the long-term trend.
• Buyer types:
  • Private capital: Dominant, accounting for 66% of investment volumes in Q4.
  • European investors: 31.5% of Q4 investment volumes.
  • APAC investors: 23.4% of Q4 investment volumes.
• Risk profile:
  • Value-Add: 44% of Q4 investment volumes.
  • Core Plus: 28% of Q4 investment volumes.
  • Core: 20% of Q4 investment volumes.
  • Development: 1% of Q4 investment volumes.
• Investment turnover:
  • City & Southbank: £0.44bn.
  • West End: £1.3bn.
  • London-wide: £1.82bn.

6. Market Performance by Submarket

• City & Southbank:
  • Take-up: 2.42m sq ft, up 44.4% from Q3.
  • Availability: 13.93m sq ft, down 5.5%.
  • Vacancy rate: 10.1%, below long-term trend.
• West End:
  • Take-up: 1.40m sq ft, up 60.8% from Q3.
  • Availability: 6.84m sq ft, up 2.1%.
  • Vacancy rate: 7.3%, slightly above long-term trend.
• Docklands & Stratford:
  • Take-up: 0.10m sq ft, down 37% from Q3.
  • Availability: 4.19m sq ft, up 7%.
  • Vacancy rate: 16.8%, well above long-term trend.

Key Information

• Market momentum: Positive, with growing optimism and increased viewings and inquiries.
• Supply constraints: Expected to drive higher rental growth, especially in the City and Southbank.
• Investor sentiment: Improved in Q4 due to falling interest rates and stabilized pricing.
• Public sector activity: Dominated take-up in Docklands & Stratford, accounting for 86.4%.
• Prime yields: Stable across most submarkets, with the West End at 3.75% and the City & Southbank at 5.25%.
• Future pipeline: Under-construction projects are expected to result in a supply shortfall, especially in high-quality spaces.

Conclusion

The London office market is showing signs of recovery and resilience, driven by a strong focus on high-quality spaces and active demand. The financial sector remains a key driver of take-up, while private capital dominates the investment market. However, supply constraints, particularly in high-quality prime spaces, are expected to continue influencing rental growth and investment activity over the next few years.