Investment in London offices hits decade low despite take-up boom

There has been a sharp slowdown in London office investment, despite demand for workspace continuing to tick up in the three months to the end of June, according to data from Gerald Eve. On the investment side, investment transactions for London offices topped just over £1.5bn in Q2, a fall of 60% compared with Q1 and almost 45% down from the prior year. This marked the lowest quarter of investment activity in London offices in more than a decade. Gerald Eve said the reduction was largely due to recent shifts in the debt market, coupled with a wait-and-see approach being adopted by both buyers and sellers. London office take-up was 3.3m sq ft in Q2, which was well above last year’s figure of just over 2m sq ft. Quarter-on-quarter growth totalled around 6%. Occupiers have favoured large prelets of floorplates of more than 20,000 sq ft, with this segment accounting for a third of overall take-up. The biggest deals included Kirkland & Ellis and Chubb taking a combined 300,000 sq ft at 40 Leadenhall, EC3. And the 360,000 sq ft Paddington Square is now fully let prior to completion, with Capital Group, DS Smith and Payment Sense all taking space. Patrick Ryan, partner at Gerald Eve, said: “Strong take-up this quarter was driven by a robust appetite for offices that meet ESG requirements and further characterised the flight-to-quality we have seen in the market as more staff return to the office.” Availability Availability increased to 8.5% in Q2, up 0.4 percentage points on the previous quarter. According to Gerald Eve, this uptick is more of a one-off than the start of an upward trend. A year ago, availability was slightly below 10%. The firm noted that several large refurbishments coming onto market in Q2, which were delayed by issues in the construction sector, hurt the availability rates. In Knightsbridge, SW1, availability jumped to 9% in Q2 from 7.5% in Q1 with 1 Knightsbridge and 7 Holbein Place coming to market totalling 140,000 sq ft and accounting for 4% of total current stock. In King’s Cross and Euston, more than 100,000 sq ft became available in 338 Euston Road, NW1, featuring newly renovated lab space. Going forward, more new developments continue to lag original delivery schedules, with schemes such as Ilona Rose House, WC2, and Paddington Square originally cited for practical completion in the latter stages of Q2 but now expected to complete in late July or August. There is an estimated 4.8m sq ft left to complete in 2022, with just over 850,000 sq ft completed by the half-year point. Only 500,000 sq ft completed in Q2 across five schemes, the largest of which was Derwent’s 209,000 sq ft 1 Soho Place, W1. Looking ahead, Gerald Eve expects sentiment to soften in the lettings market over the remaining summer months. Ryan said: “We expect the Q3 summer months to be far less acquisitive as companies take stock of the political and economic environment, both within the UK and across Europe. On a positive note, we expect that this pause in activity will rebound in Q4, although to what extent is harder to predict.” To send feedback, e-mail evelina.grecenko@eg.co.uk or tweet @Gre_Eve or @EGPropertyNews Use EG Radius to search current availabilities across London >> See which agents are doing the most deals in the London submarkets >> Photo © Ismail Merad/Unsplash