March 13, 2013
Shifting occupier dynamics, a limited supply pool, and a flurry of west to east relocations is redefining the boundaries of London’s West End office market. Sue Foxley, head of research, Cluttons, explained: “Corporate occupiers recognise the importance of securing high quality space within key markets in order to attract and retain the best possible staff, however, it is inevitable that the increasingly restricted supply pool is continuing to hamper relocation options. Businesses, regardless of sector, certainly are not looking for ‘budget’ rental options, but they are becoming increasingly aware that opportunities to secure quality space is scarce and not limited to prime areas.”
The property consultants and chartered surveyors’ latest West End office update reveals that relocations continue to be restricted by limited choice. This translated into a record number of prelets taking place in 2012, accounting for 22 per cent of all transactions, the highest level for the last five years. Demand has also become wider spread to other peripheral submarkets since the turn of the year, as tenants continue to seek out the best opportunities.
Cluttons believes that the 1.8 million sq ft of space at risk through lease events in the West End this year could add increased churn to the occupier market, placing greater focus on lease negations, security of income and refurbishment of inadequate stock. However, with a large proportion of this space being of secondary quality, overall supply is expected to remain restricted.
Investor activity also remains strong in the West End. In 2012, £4.9 billion worth of assets were transacted, indicating that the UK’s ‘safe haven’ status remains intact. Despite the UK credit rating downgrade by Moody’s, Cluttons believes investor interest will remain keen, particularly from those from the Asia Pacific region.
Sue Foxley added: “The fall in Sterling has created an additional lure to foreign investors who are eager to take advantage of the attractive returns available. Two thirds of all investments made in 2012 were driven by international demand and we believe this interest will continue, though how long these premiums will remain on offer is uncertain.”
by Sara Bean