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London office market under pressure as we enter Q3

4 September 2017

The stability enjoyed by London’s office market over the last few quarters is increasingly coming under pressure during Q3, according to Cluttons London Office Bulletin for Summer 2017.

Ralph Pearson, Cluttons head of commercial agency explains: “Reduced levels of occupier activity continue post Brexit with increased instances of tenants renewing leases rather than electing to relocate. While take up in Q2 was close to the 5 year average it should be noted the gloss was provided by WeWork who accounted for the two largest deals involving a total of 425,000 sq ft in Shaftesbury Avenue and at South Bank Place. Q3 is seeing quoting rents slipping across much of central London with rent free periods continuing to lengthen”.

Central London office investment volumes continue to spike. Between January and July, a total of £11 billion of investment activity in the Central London office market was recorded by Property Data, which includes both domestic and international investment activity. This compares to a total of £10.2 billion worth of deals during the same period last year. The overall proportion of investment in to Central London’s office sector has also risen to 78.2% of all commercial property investment within Central London, compared to 64.8% between January and June 2017.

Cluttons’ head of research, Faisal Durrani, explained: "International investors remain very active in the Central London office market, buoyed by sterling’s weakness. In particular, Chinese and other Asian investors have been especially active in recent weeks. The sudden activity surge has likely been fuelled by the urgency to shift capital out of China as stricter controls on capital outflows for property investment are phased in by the Chinese government”.

"While net effective rents are clearly falling, there are still pockets of the market where capital values are holding up, underpinned by a distinct lack of stock, coupled with resilient demand. This has led to some buyers, especially owner occupiers, paying strong prices for vacant buildings. With rents showing signs of softening across the market as a whole, it is likely that values may soften as the year progresses”.