Office leasing activity in the City of London rose to just over 1m sq ft in Q2 – the highest quarterly total since the end of 2021 and 18% above the 10-year quarterly average, according to the latest data from Avison Young.
The company recorded 1,037,287 sq ft of take-up driven by strong activity from SMEs and the financial sector. SMEs accounted for almost 80% of transactions in Q2 compared with an average of 65%. No transactions in excess of 100,000 sq ft were recorded in the quarter – the first time since 2020 and only the third time since 2010.
Financial services companies accounted for 31% of total take-up, followed by the professional services sector (28%). There was also an increase in the share of take-up from the flexible office sector.
The London office investment market remained subdued with total turnover for the second quarter of £1.2bn, 65% below average.
James Walker, head of London leasing at Avison Young, said: “We saw a significant uptick in leasing activity in the City office market during Q2 2023 as a number of financial sector requirements were satisfied. Unusually for the City there were no 100,000 sq ft+ deals, but this increased the significance of such strong take-up levels as we have seen smaller, more agile occupiers placing their confidence in Central London.
“We have also seen an increase in activity from the flexible office sector, which had been relatively quiet over the preceding 12 months. Requirements continued to focus on best-in-class space, which resulted in prime rental growth in a number of markets; we expect this continue through the rest of 2023 and into next year as the availability of top quality space comes under increased pressure.”
Dominic Amey, London markets managing director at Avison Young, added: ‘’The investment market is beginning to wake up. The markets believe that interest rates will settle at around 5.5%, and more positive inflation data is beginning to provide some comfort to investors. Transaction volumes have been low, and whilst we expect this to continue over the summer, I believe that Q4 could see a much stronger end to the year.
“Each deal that we see builds the foundation of price discovery. Most of our clients are interested in core-plus to value-add, seeking to create best-in-class offices, and they are very much encouraged by the positive leasing data and prime rental growth expectations. The current ongoing sale of 125 Shaftesbury Avenue will be an interesting bellwether for the market as a substantial repositioning opportunity, and will further help to build wider investor confidence.’’
