Central London take-up falls 34% in third quarter - JLL

The real estate sector in Central London is taking a significant hit and may continue to do so until the end of the decade as the downturn in UK property has proved more severe and longer lasting than anticipated.

Take-up in Central London in the third quarter has fallen by 34% on the equivalent period of 2007, according to the figures released on Tuesday by broker Jones Lang LaSalle. JLL said active demand has decreased by 18% with further falls expected. Only 176,000 m² was let across Central London in 100 deals, described by the broker as the lowest level since 2004. The total investment volume fell 30% to £1.2 bn (EUR 1.5 bn).

Neil Prime, head of Office and City Agency at Jones Lang LaSalle, was in philosophical mood when he addressed delegates at the Central London Seminar on Tuesday. 'The will always be a market, it's just volumes that may vary,' he said.

'The downturn is more severe and longer lasting than previously anticipated so it's no surprise that we are saying conditions are tough and are getting tougher! As occupiers re-trench in reaction to the global economic climate rents will continue to fall until at least the end of 2010. However, the first signs of a bounce back will be felt in the City, where we expect demand to accelerate in response to a shortage of supply.'

He said that the economic climate continues to feed occupier hesitancy in the City, particularly from the financial sector resulting in a fall in prime rents by 4% to £60 per sq ft. Overall demand in the City continues to fall, and this quarter witnessed a 12% drop to 957,000 m².

But just over 92,000 m² was let in several deals in the third quarter, a 45% increase on Q2. Total take-up so far this year comes to just over 278,000 m2, 41% behind the same period in 2007.

Jones Lang LaSalle said it expects take-up volumes to continue to fall across London into 2009. Occupiers that do not have to make a decision now will be inclined to wait, however it is not anticipated that demand will decrease to the extent of the levels of 2001 and 2002. Vacancy rates still sit below the 10-year average however they will start to creep up. In Q3 supply across central London increased by 11% due mainly to some development pipeline stock coming online.

Combined with the increasing disposal of space by tenants, rents will continue to fall into 2010 as surplus space continues to enter the market, the broker said.