The leasing market received a shot in the arm in Q3 2016, with Apple committing to 500,000 sq ft in Battersea and as a result Central London leasing volumes were up 22% quarter on quarter. Nevertheless, the underlying trend has been subdued, albeit this coincided with the summer lull. Central London leasing volumes reached 6.7 million sq ft in the year to date, which was 11% below the 5 year Q1-Q3 average.
Supply continued its upward trend as a number of developments approach completion but overall vacancy remained low. Central London supply stood at 11.8 million sq ft at the end of September, which equated to a vacancy rate of around 4.6%. While expectations are that a number of developments will be postponed, there has been little actual evidence of this to date.
Headline rents have been maintained but there is evidence of more generous rent free periods and greater flexibility being granted to tenants. Prime rents remained stable across all Central London submarkets, with the exception of Mayfair & St James’s.
Investment volumes declined over the quarter and arguably a lack of stock is holding back the market. Investment volumes reached £3.24 billion, which was 16% down on Q2 figures. The depreciation of the pound is making the London market attractive to overseas investors, especially those from Asia who were the dominant overseas purchaser in Q3 2016.
Elaine Rossall, Head of Central London Research