Market overview

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Dynamics

The market in London is cyclical, with pronounced fluctuations in property values in response to changing levels of occupier supply and demand. We are currently in supply-constrained conditions. There remains a relatively healthy level of occupiers looking to take space in the West End, but the level of letting activity in the City is slowing. The level of new building completions is increasing and we expect the supply-constrained conditions to ease from 2017.

The market is also driven by the evolving needs and expectations of customers communities, particularly in areas such as flexible open plan space; ocupational density; energy efficiency; high quality design and facilities; and imaginative improvements to the environment around buildings, including the public realm. Our customers are increasingy interested in sustainable design, recognising that wellbeing influences staff retention and productivity.

Enduring appeal

Central London has enduring appeal for investors and occupiers offering:

  • The capabilities and opportunities of a global financial centre
  • A deep and liquid property investment market
  • An international gateway
  • Reasonable and relatively stable tax rates
  • Strong business infrastructure
  • A diverse community
  • English-speaking population
  • Excellent quality of life
  • Access to top universities
  • Good transport infrastructure

Strengths

London's strengths are attracting a large and diverse mix of property investors, many from overseas. This is currently helping us when selling assets but it is increasing competition when buying.

Challenges

Challenges for London include:

  • Limitations on economic growth due to restrictions on immigration
  • The impact of a growing population leading to high costs, both for businesses and residents
  • Lack of housing at affordable or attractive prices
  • Lack of clarity around airport expansion
  • Pressure on an ageing infrastructure, including power and sewerage
  • Increased levels of stamp duty on residential and commercial transactions
  • Uncertainty around the UK's continued membership of the EU

Market during the year

  • Take-up of office space in central London for the 12 months to 31 March 2016 totalled 14.7 million sq ft compared to the 10-year average rate of 12.9 million sq ft
  • At 31 March 2016 the vacancy rate stood at 2.6% compared to a long-term trend of 4.3%
  • Over the 12 months to 31 March 2016 prime headline office rents grew by 7.7% in the city and by 2.1% in the West End
  • The volume of high value residential sales remains subdued

Source: CBRE (all data)

Outlook

We expect supply-constrained conditions to remain this financial year as the volume of development schemes projected to complete over the next 12 months is not expected to satisfy the forecast level of demand for new space. Beyond 2017, the demand/supply balance is less clear as the level of development completions is rising. If the UK votes to leave the EU in June, this could quickly result in a significant reduction in demand for London office space and change in the demand/supply balance leading to falling rental values and asset prices.

Source: CBRE (all data)

 

Statistics

LS 2016 - London Supply

 

 LS 2016 - London Takeup

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