Central London office take-up has slowed, with end-of-year figures showing the second-lowest Q4 total for more than 10 years, according to preliminary data from Avison Young.
Take-up for the full year totalled 9.4 m sq ft – a 7% improvement on 2021 levels – but wider economic uncertainty has led to office take-up slowing down in the final quarter of the year to date.
Data from the agency, revealed exclusively to EG, estimated 2.3m sq ft of office space was transacted in the final quarter this year, a figure just shy of the 10-year quarterly average of 2.5m sq ft.
However, it also showed that continued demand for best-in-class space maintained rents. Prime rents in the City and West End markets for best-in-class space remained stable at record levels of £77.50 per sq ft and £125 per sq ft, respectively.
James Walker, principal of London office leasing at Avison Young, said: “Given the deteriorating economic outlook, it was perhaps inevitable that some tenants would reconsider their occupational requirements and, in some cases, delay their office moves.”
The agency said it expects the trend to continue into the first quarter of 2023, after which, it predicts “more clarity on the economic recovery will bring confidence back to the market”.
Walker added that despite this, demand for best-quality space remained strong. “Given the acute lack-of-development pipeline, especially for larger requirements, we are seeing many examples of tenants pressing ahead and agreeing deals to avoid missing out on their preferred options,” he said.
Prime net initial yields softened further in the final quarter due to factors including the rising cost of debt, the upward pressure on inflation and uncertain geo-political outlook, all of which directly affected buyers’ pricing expectations, according to research.
Final-quarter turnover was estimated to be just under £300m, the lowest quarterly total on record. Figures showed the prime yield in the City and West End markets moved out by 25 basis points to 4.50% and 3.75%, respectively.
Jamie Olley, also a principal in AY’s London office investment team, said the results were in line with the agency’s predictions. However, he added that the agency expects demand to return once buyers are comfortable that the debt markets have stabilised.
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