Demand for London Offices Soars

Across Central London take-up increased 29% to 1.9 million sf, the highest quarterly total since the third quarter of 2002. The City of London core sub-market reported the highest take-up of office space since the first quarter of 2001 with 746,458 sf. Across the city as a whole, take-up reached 1.3 million feet, an increase of 40% over the first quarter of the year.

In both markets, there is a gap in demand for middle-range space as occupiers take advantage of historically low rents for new stock. C&W/H&B predicts that, until supply shrinks to levels that necessitate interest in the middle ground, it will not be possible to talk of a Central London recovery.

"There is now clearly an uplift in the Central London market," says Guy Taylor, head of West End agency. "The pace is faster in the West End than in the city with some record rents set in Mayfair and St. James. The market at the cheaper end has been dominated by the public sector and at the prime upper end by sectors such as finance."

Although supply continued to increase in the city to 19 million sf, up from 18 million in Q1 2004, the current pipeline of 2.3 million feet under construction is the lowest level on record. The figures mean this year marks the end of the current development cycle with only 181,000 sf of new space due to be completed in 2005.

Take-up activity in the West End also remained strong as occupiers regained confidence in the market, despite the release of the Lyons Report, which recommended the relocation of civil servants outside of London. Demand from the public and government sector actually increased from 918,000 sf to 1.3 million feet in the second quarter, making up 24% of all space taken.