Discover the Latest Trends in Central London’s Real Estate Market
Office Leasing Activity
In the second quarter of 2023, office leasing activity in Central London saw subdued figures, with a total of 2.0 million square feet transacted. This marked a 20% decline compared to the 10-year Q2 average and was also lower than the same period in 2022, which recorded 2.7 million square feet leased. Year-to-date, office leasing volumes reached 4.0 million square feet, reflecting a significant 24% decrease compared to the equivalent period in 2022 and falling 15% below the long-term H1 average.
Investment Activity
The investment landscape in the Central London office market experienced a notable decline in Q2 2023, with volumes falling by a third to just over £1.4 billion. Year-to-date, investment volumes amounted to £3.6 billion, indicating a substantial decrease compared to the £7.7 billion traded during the equivalent period in 2022. The H1 2023 investment volumes were also 41% lower than the 10-year H1 average of £6.0 billion.
Office Space Under Offer
Despite the subdued leasing volumes, there is a positive development in the total volume of office space Mayfair under offer. It continued its upward trajectory for the second consecutive quarter, reaching a four-year peak of 3.7 million square feet by the end of June 2023. This suggests potential activity in the pipeline and provides a hopeful outlook for the upcoming quarters.
Demand for Prime Office Space Remains Strong
Office Leasing transactions in Q2 2023 total 2.11 million square feet, marking an 8.6% increase compared to the previous quarter. Notably, the entirety of 36-38 Berkeley Square, expected to complete in mid-2024, contributed to this growth. Financial occupiers have remained active, accounting for a third of deals in this quarter and 28.5% over the last year, surpassing long-term averages for the sector by 15.4%. Non-banking financials, including insurance firms and investment managers, accounted for 95% of financial services transactions in Q2. The technology, media, and telecoms sector, as well as other corporate occupiers, also played a significant role, accounting for 14.3% and 13.5%, respectively. Despite lower transaction levels, active requirements have increased to over 9 million square feet, nearly 10% above the long-term average. The financial and professional services sectors account for more than 70% of all near-term demand.
The number of transactions under offer has also grown during the quarter, rising to 3.23 million square feet, with 2.5 million square feet of these transactions related to currently available offices. If all deals are completed, availability would reduce to 23.3 million square feet, and the vacancy rate would fall to 9.2%. Demand for prime space continues to drive rental tension in core submarkets, with prime rents rising to £135.00 per square foot in the West End Core and £77.50 in the Southbank Core. Our rental forecasts are also being revised to account for the changing economic outlook. As the London economy strengthens between 2024-27, we expect stronger occupier demand, combined with a supply squeeze of prime space, to drive relatively strong rental growth.
Prime Office Space Availability Remains Limited Relative to Demand
Availability has risen by 7.5% to 25.8 million square feet this quarter, with the vacancy rate increasing to 10.2%, against a long-term average of 6.8%. Of the 1.8 million square feet increase, 1.4 million square feet are attributable to upcoming developments, with tenant release space remaining stable at a quarter of all availability. The proportion of new and refurbished office space in London remains elevated against historical levels, accounting for 58% of all market availability. Prime space remains concentrated in fewer buildings, with new and refurbished offices accounting for only 43.3% of available buildings, with 10 submarkets below this London average. Available prime office space in Belgravia is limited in larger size band buildings that are sustainable, well-located, and amenity-rich. In the core City and West End submarkets, there are only 15 buildings above 60,000 square feet that have availability.