Small-scale lettings have helped the City outperform the rest of London.
According to Avison Young’s Q2 Central London Report SMEs have led the charge, boosting City office take-up to just over 1m sq ft in the second quarter.
AY recorded 1,037,287 sq ft of leasing transactions in the three months to June 2023, the highest quarterly total since the end of 2021 and 18% above the 10-year quarterly average.
But unusually for the City market, there were no transactions in excess of 100,000 sq ft. This quarter is the first time since the anomaly of the 2020 pandemic year that this has been the case, and only the third time since 2010.
Office take-up by small and medium sized businesses in the City accounted for almost 80% of transactions in Q2 compared to an average of 65%.
AY principal James Walker said that the lack of deals above 100,000 sq ft “increased the significance of such strong take-up levels as we have seen smaller, more agile occupiers placing their confidence in Central London.”
The financial services sector accounted for 31% of total take-up, closely followed by the professional services sector with 28%. There was also an increase in the share of take-up from the flexible office sector.
The smaller deals helped the City to outperform the Central London market as a whole, which recorded 1.9m sq ft of take-up, 22% below average.
AY said take-up in the Tech Belt market was particularly low, with just 108,000 sq ft of space leased during the quarter. That is 73% below average.
But prime headline rents are still rising. Mayfair reached £135 per sq ft, the highest ever recorded, while prime rents in the west City and east City markets also saw growth to £77 per sq ft and £75 per sq ft respectively.
And the investment picture remained subdued, as purchasers and vendors continued to wait for clarity over pricing. Investment turnover for the second quarter was £1.2bn, AY said, 65% below average.
However, Dominic Amey, principal and MD of AY’s capital markets group investment, said: ‘’The investment market is beginning to wake up” as “each deal that we see builds the foundation of price discovery”.
He added: “The markets believe that interest rates will settle at around 5.5%, and more positive inflation data is beginning to provide some comfort to investors. Transaction volumes have been low, and whilst we expect this to continue over the Summer, I believe that Q4 could see a much stronger end to the year.”
He said that the sale of 125 Shaftesbury Avenue, which is a substantial repositioning opportunity, will be “an interesting bellwether for the market”.
