London, office market outlook, January 2018

Cluttons has released its latest London Office Market Outlook report, detailing the performance of the occupier and investment markets, including our view on how the market is likely to perform during 2018.

During the final quarter of 2017, 10 of the 18 Central London office submarkets we monitor registered rent falls, with momentum building on the corrections that began during Q3 last year. This translates into 18 months of faltering net effective rents, since the Brexit referendum

Whilst large deals, like the WeWork pre-let of 186,000 sq ft at The Stage in EC2, are positive for statistics, the rental reductions being recorded suggest that actual demand remains relatively subdued. Indeed, there is some concern about the potential for an oversupply of serviced offices.

During 2017, purchasing activity in London’s office investment market was up almost 45% on 2016, rising to just over £14 billion, but this was down to a handful of very large deals. Overseas investors continued to dominate deals, accounting for almost 90% of all transactional activity. While the total number of deals remains limited, the magnitude of capital entering the market is supporting relatively stable capital values, although these too have begun to weaken in many locations.