Office availability in central London fell to a 15-year low during the third quarter of the year as the development pipeline continued to lag behind occupier demand.
The vacancy rate in the capital fell to 10.29m sq ft or 4.68% of total stock, according to research from BNP Paribas Real Estate, which is equivalent to less than one year’s supply at current levels of take-up.
With robust demand and no development additions to the supply chain this year, take-up was dominated by pre-let deals, with occupiers forced to look to future schemes to fulfil their requirements.
So far this year, 13 pre-lets have been recorded, equivalent to 660,000 sq ft, which has seen take-up for the year to the end of September reach 10.78m sq ft – 18% above the long-term trend, the firm’s Central London Office Market report found.
“With robust levels of demand and no further developments coming on stream this year, rents are set to increase and occupiers are increasingly looking to the future development pipeline to fulfil their property requirements,” said Daniel Bayley, BNP Paribas Real Estate’s head of central London.
“Increasingly, they are turning their attention to non-traditional and emerging locations away from the core areas to satisfy their requirements in terms of space and value.”
Activity in London had been boosted by pre-letting activity, he added. “We expect that take-up levels of this magnitude will continue in 2016 as the development pipeline starts to deliver much-needed new stock.”
The report also found that investment volumes in central London hit £11.91bn to the end of Q3 – 28% ahead of the average. The investment market continued to be dominated by overseas buyers, who accounted for 64% of purchases in the third quarter.
Simon Williams, head of investment at BNP Paribas Real Estate, said: “London remains attractive. With employment expected to grow by 6% between 2015 and 2019, and with no real immediate answer to London’s supply squeeze, we expect that strong prime rental growth will deliver robust annual average returns of 5.3% over the next five years.
Conversely, the continued demand for central London assets also presents a rationale for vendors seeking profit from record capital values to sell. A number of substantial assets are being prepared for sale later this year, which will contribute to above-trend investment volumes in Q4.”