2014 saw the most active year for the commercial property market since 2007. Will we see the same strong performance for the market in 2015? The following statistics outline the contrasts between the overall demand in both the West End and City of London:
In the West End, take-up in Q4 remained relatively consistent with take up in Q3 and overall totalling around 3.4 million sq. ft. in 2014, consistent with the 10 year average and well above the five year average take-up figures. Availability going into 2015 stands at approximately 3 million sq. ft. with vacancy rates standing at 3.6%. Demand outstrips supply, with 4.8 million sq. ft. of space required, and this will continue to be a problem with very few large developments completing going into 2015. As an example, 35% of all un-finished developments have already been let.
Prime rents have exceeded at an astonishing £185 per sq. ft. and have now reached the previous peak level set in late 2007.
The City of London saw a contrast in statistics, with take-up in 2014 reaching 7.3 million sq. ft., marginally higher than
the 6.8 million sq. ft. transacted in 2013 but well ahead of the 10 year average of 5.3 million sq. ft. and the busiest year since 2001. Vacancy rates have steadily fallen and currently stand at 6.1%, the lowest since 2008, and significantly lower than the overall demand in the City, which stands at over 11 million sq. ft.
Pre-lets at new developments accounted for approximately 2.3 million sq. ft. of the transactions last year, leaving less than half the remaining space at these developments still on the market, and with demand so high, it is likely this space will let quickly. Prime City rents have risen steadily in 2014 and now stand at £60.00 per sq. ft.
In Q4, the technology sector was the most active industry (24%), followed by the banking and finance sector (18%) and professional services sectors (16%).
So what does this mean for many London businesses in this coming year? We expect rental growth to accelerate further still in 2015 as the supply/demand imbalance intensifies, with rents forecast to increase by more than 10% to £68.50 per sq. ft. by the end of the year in the City and perhaps up to 19% in the West End as the shortage of available stock starts to bite across London as a whole. However, tenants continue to be highly mobile across Central London due to this shortage.