Looking for answers

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Stacey Meadwell

05 April 2008

Alarm bells? What indication do Drivers Jonas statistics for Q1 give of the capital’s market performance in the downturn?

The sunshine and champagne of MIPIM is becoming a faded memory, and with April upon us, it is time for a sober look at the London market. At the end of 2007, agents predicted, or maybe hoped, that Q1 figures would provide some answers to how the capital’s market will ride out the downturn. But have they?

In research shown exclusively to EG, Drivers Jonas has compiled central London statistics for Q1.

And they do not appear as alarming as some recent headlines might suggest. Anthony Duggan, research partner at Drivers Jonas, says: “I was pleasantly surprised by the figures, but nonetheless, we are seeing a trend of lower take-up and higher availability.”

At first sight, the availability graph for the West End looks alarming, but figures are recovering from a dearth of space, so the completion of a couple of schemes dramatically affects the figures.

The availability graph for the City, however, looks better than the long view suggests. Availability is 60% below the 10-year average, but over the next 24 months, 6m sq ft of speculative office space is due to be completed, which will more than double the amount of space on the market.

“The City has an average amount of development in the pipeline for an OK market, but a lot for a weak market,” says Duggan.

With the exception of unexpectedly high take-up figures for the City, none of Drivers Jonas’ research will come as a surprise.

City take-up during the past three months is almost double that of Q4 2007. However, Duggan explains that this is because of market lag. This means that several large deals – such as DTZ taking 125 Old Broad Street, EC2, and insurance broker Lockton taking a prelet at Minerva’s St Boltolph’s scheme, EC3 – were completed earlier this year after being agreed three or four months ago.

“You would not expect the property market to move as quickly as the financial markets,” he says, hinting that worse may be to come.

The West End has seen a drop in a take-up of 22% in the past 12 months. Just 70,000 sq ft of new grade A space was signed in Q1, but Duggan says this is in part owing to a lack of availability.

Overall, central London take-up was higher in Q1 than the previous quarter, but down on the average quarterly take-up for the past two years.

So can any clarity be drawn from all of this? Well, yes and no.

“The figures will give some confidence to those in the market, but the looming City pipeline is what people are really worried about,” says Duggan.

“It will be the next quarter or even later before we see if there is any visible movement from the banks releasing space back to the market. There hasn’t been any hard evidence of it yet.”

He concludes: “I don’t think the figures are positive enough to give anyone any optimism. We are still some way away from a silver lining.”

Alarm bells? What indication do Drivers Jonas statistics for Q1 give of the capital’s market performance in the downturn? The sunshine and champagne of MIPIM is becoming a faded memory, and with April upon us, it is time for a sober look at the London market. At the end of 2007, agents predicted, or maybe hoped, that Q1 figures would provide some answers to how the capital’s market will ride out the downturn. But have they? In research shown exclusively to EG, Drivers Jonas has compiled central London statistics for Q1. And they do not appear as alarming as some recent headlines might suggest. Anthony Duggan, research partner at Drivers Jonas, says: “I was pleasantly surprised by the figures, but nonetheless, we are seeing a trend of lower take-up and higher availability.” At first sight, the availability graph for the West End looks alarming, but figures are recovering from a dearth of space, so the completion of a couple of schemes dramatically affects the figures. The availability graph for the City, however, looks better than the long view suggests. Availability is 60% below the 10-year average, but over the next 24 months, 6m sq ft of speculative office space is due to be completed, which will more than double the amount of space on the market. “The City has an average amount of development in the pipeline for an OK market, but a lot for a weak market,” says Duggan. With the exception of unexpectedly high take-up figures for the City, none of Drivers Jonas’ research will come as a surprise. City take-up during the past three months is almost double that of Q4 2007. However, Duggan explains that this is because of market lag. This means that several large deals – such as DTZ taking 125 Old Broad Street, EC2, and insurance broker Lockton taking a prelet at Minerva’s St Boltolph’s scheme, EC3 – were completed earlier this year after being agreed three or four months ago. “You would not expect the property market to move as quickly as the financial markets,” he says, hinting that worse may be to come. The West End has seen a drop in a take-up of 22% in the past 12 months. Just 70,000 sq ft of new grade A space was signed in Q1, but Duggan says this is in part owing to a lack of availability. Overall, central London take-up was higher in Q1 than the previous quarter, but down on the average quarterly take-up for the past two years. So can any clarity be drawn from all of this? Well, yes and no. “The figures will give some confidence to those in the market, but the looming City pipeline is what people are really worried about,” says Duggan. “It will be the next quarter or even later before we see if there is any visible movement from the banks releasing space back to the market. There hasn’t been any hard evidence of it yet.” He concludes: “I don’t think the figures are positive enough to give anyone any optimism. We are still some way away from a silver lining.”