London office market heading out of recession - C&W

The third quarter ending on 30 September will be the best for the London office letting market since the collapse of Lehman Brothers, according to a report from real estate advisor Cushman & Wakefield.

In the three months to end-September, take-up of office space across the capital's main West End, City & Docklands markets will have increased by 64% on Q2 to 1.86 million square feet (170,000 m2), Cushman & Wakefield predicts.

The figure is more than double the take-up seen in Q1 when only 716,000 sq ft of space was acquired by companies, the lowest level on record. In the City, take-up of 1.35 million sq ft has been boosted by the recent letting of Watermark Place to Nomura, and is higher than the quarterly 10-year average of 1.14 million sq ft.

C&W said rents have also reached their lowest point in the cycle. Prices on prime space - the benchmark for the market - have now bottomed out at £42.50 per sq ft in the City and £75 per sq ft in the West End. Cushman & Wakefield now expects prime rents to begin to increase during the latter half of 2010, providing a boost for landlords and developers and translating into a narrowing window of opportunity for tenants to secure space at the lowest prime rents in a decade. With confidence returning, tenants can also expect to see less generous incentive packages from landlords, the adviser said.

Although increased take-up and stable rents mark the beginning of the climb out of the London’s office recession, the supply of office space on the market has increased again with 20 million sq ft now available across Central London, a vacancy rate of 8%. However, this amount falls short of the peak levels of availability in the early 1990’s and 2003-5 (the peak in
June 2004 was 27.2 million sq ft).