At £64.3bn, investment in UK commercial property reached a new annual record last year, 4 percent above 2014,  according to new research published by Lambert Smith Hampton. This performance was bolstered by a strong end to the year, with investment between October and December reaching £15.7bn, 23 percent higher than in the previous quarter. Investment in London reached £26.9bn, 4 percent higher than in the previous year.  According to the report asset management will be vitally important in 2016, as rental income will be the main driver of performance, and as such, pro-active asset management initiatives, such as investment in office refurbishments in areas with few vacancies, are likely to offer the best prospects for investors. Explained Ezra Nahome, CEO of Lambert Smith Hampton: “This means that knowing your market, almost at a building-by-building level, and understanding the dynamics of each locality, will be more important than ever.”

Over 3.2 million sq ft of office space was taken up in 2015 – up 28 percent from the previous year and 13 percent higher than the five year average. According to the latest figures from CBRE UK, the largest annual take-up increase occurred in the M25 South region, which improved dramatically from circa 404,000 sq ft in 2014 to circa 836,300 sq ft in 2015. Net supply remained unchanged across the South East from the end of the preceding year at around 12 million sq ft, 15 percent below the five year average. There was an increase in the proportion of Grade A supply in the market, and 34 percent of the total supply was either newly completed or under construction compared to 26 percent at the end of 2014. This was the result of take-up of Grade B space, loss of office space due to conversion to residential, and the delivery of new space.

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Competition for office space and investment assets in Paris remains strong, on the back of healthy economic growth, with GDP in the country expected to grow by 1.1 percent this year, and a further 1.4 percent in 2016, after three years of subdued growth. Following a relatively weak performance in the first quarter of 2015, office leasing in Île-de-France recovered in the third quarter, with annual take-up forecast to again exceed 2 million sq m.  Though demand remains high, rents have been left unaffected, further increasing the desirability of the market. Limited development will continue to restrict occupier activity – the development pipeline for the next two years has reduced, with much of the new stock likely to be pre-leased before completion. Heena Kerai, International Research Analyst at Knight Frank, commented: “Occupier and investor confidence will remain positive and despite stock limitations, we can expect both markets to put in a strong performance in the coming quarters.”

European office take-up will rise by 10 percent in 2016 with this rise in office demand expected to encourage increased development over the next 12 months, according to the Knight Frank European Commercial Property Outlook 2016. Development activity is likely to be shaped by the current polarisation of office demand, with occupier interest most strongly focused on prime city centre space, while older and less well-located offices will struggle to attract tenants. With prime commercial space in short supply in cities such as London, Paris, Dublin, Frankfurt and Madrid, occupiers seeking large centrally-located offices currently have very limited choices. However, in cities such as Amsterdam and Brussels, vacancy rates remain relatively high for Grade B offices and secondary locations, so as a result, the European commercial property market will step up the redevelopment of such properties.

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