Demand for office space in central London fell 27% in the fourth quarter of 2008 with the onset of recession, according to Jones Lang LaSalle’s latest Central London report.
The report says 2008 saw an annual total take-up of 10m sq ft, 15% lower than 2007 levels.
JLL head of office and City agency Neil Prime said: “This downward trend in occupier activity will continue for the foreseeable future until we see some stability in the wider economy.
“New requirements will emerge but at lower volumes than in recent years and many of these will be a result of structural events, physical obsolescence or consolidation.
“However, notwithstanding this, 2009 could be one of the most challenging years on record for take-up in central London.
“Rental decreases are forecast to last until the end of 2010, with occupiers adopting a ‘wait and see’ approach where they can. Thereafter we expect to see rents’ beginning to recover as the oversupply in the market is eroded and vacancy rates begin to reduce.”
Demand in the City in Q4 stood at 7.8m sq ft, a 25% fall on the previous quarter, and 36% lower than the year before.
In the West End, total occupier demand fell by 16% to 4.9m sq ft in the fourth quarter.
JLL said the combined effect of a fall in demand and the release of surplus space to the market would mean prime headline rents in the City will reach £50 per sq ft by the end of the year and £47.50 per sq ft by the end of 2010.
In the West End, prime Mayfair rents fell to £95 per sq ft at the end of 2008, and JLL expects West End rents to fall further, reaching £80 per sq ft by the end of 2010.
Investment levels across central London for 2008 fell to £6.3bn, a 66% fall on 2007, while the £949m traded in the final quarter was the weakest since 2002.
In the West End £340m was traded in Q4, a 47% fall on Q3, and the annual total of £3bn was a 53% decline on 2007.
Transactions in the City totalled £344m in Q4 – the weakest quarter since 1996 – while the annual £3.1bn total was 67% lower than 2007 figures.
