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LONDON-Office take-up slowed in the first half of 2001, according to the latest ‘Central London Office Market Outlook’ report from Insignia Richard Ellis. But while London is set to weather the storm, the broker says that market prospects are now subject to greater uncertainty after the events of 11 September.

Office take-up in Central London over the first six months of 2001 totalled 8.2 million sf, down 9% on the equivalent period of 2000. However pre-letting activity remained strong, accounting for 44% of the all space absorbed in the first half of the year. And this trend persisted into the third quarter with major deals at Paternoster Square in the City, Paddington in the West End and Canary Wharf in Docklands.

The availability of second-hand office space has risen sharply through 2001, but new supply remains very limited. At the mid-year point, Central London’s overall vacancy rate was only 3%, with just 4.4 million sf of available floorspace under construction. Reflecting this tight market, prime office rents in the City have continued to rise this year although the top rent in the West End has remained static at just over £80 ($117) per sf.

Peter Damesick, Research Director at Insignia Richard Ellis said: “At this stage we can only speculate on the implications for London of the terrorist action in the US on 11 September. Before that, our expectation was a further easing in office demand in Central London and a continued rise in second-hand supply, with rental growth effectively stalling in the short term. Development is restrained so new supply will continue to be modest and we anticipated an improved letting market by 2003.’

But Damesick said the disaster in New York could have an unexpected impact in London. ‘As a partial offset to the consequences of the damage in New York, activity in London’s international financial services may need to be increased, temporarily at least,’ he said. ‘Some US companies may choose to increase operational levels in London, but it is unclear at this point to what extent this may generate some requirements for office space in London.’

However, Damesick said the impact of September 11 and its aftermath on business investment and world economic activity will be of far greater long-term importance for the office market than any short-term uplift in demand.

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