Office take-up activity in London fell significantly in Q1 2023, according to new research from Gerald Eve. The first quarter figure of 2.4m sq ft was down 19% on Q4 2022 and 16% below the five-year quarterly average.
Gerald Eve said macroeconomic headwinds, such as increased costs associated with business rates, debt, utilities and labour, had “weighed down on corporate confidence” with many firms reviewing their space requirements.
Around 400,000 sq ft was returned to the market in Q1 and tenant-controlled space reached a record-high of 6.5m sq ft, which accounted for around a third of the increase in overall availability, which now stands at 8.6%.
Patrick Ryan, partner at Gerald Eve, said: “Occupier sentiment weakened this quarter and many are taking a cautious view of recent economic performance. This has led to a more tempered outlook and some occupiers are now running the rule over previously agreed forward commitments. But on balance there’s still strong demand for Grade A premium office space, especially properties with the best ESG credentials in the core of the West End, and supply is tight at the top end of the market. This has led to a significant number of transactions in the core West End at rents north of £100/sq ft.”
According to the firm’s figures, investment activity improved in Q1 with just under £1.7bn of deals completed across nine transactions – a more than two-fold increase on the previous quarter. However, the figure was still 40% below the five-year quarterly average.
Lloyd Davies, partner at Gerald Eve, said: “There is increasing evidence of price stability returning to the London office market. Would-be vendors now have more confidence, and the sales pipeline is increasing. This will likely support a cautious recovery in transaction volumes later this year, following the very subdued activity during the last two quarters.
“The review of London offices EPCs shows there is a significant challenge ahead for landlords to upgrade older and poorer performing stock. Currently, almost half of London’s offices will fall into non-compliance by 2027 and investment is needed to avoid stranded assets.”
