• Significant improvements in terms of active requirements, completed transactions and under offers with the number of deals completing up by 36 per cent on last quarter. This continues to underpin rental value growth, while areas further from core remain popular given more competitive pricing.
• Noho continues to attract, with a new wave of private equity and extraction firms willing to pay premium rents for new or pipeline space just north of Oxford Street. However, top end, centrally located units are taking considerable time to let in some instances.
• More cost sensitive businesses, in the media and service sector, continue to fuel the 'west-to-east' migration, focussing predominantly on Clerkenwell and the western City core, seeking more affordable rents while refusing to compromise on quality.
• Prime office rents in Mayfair / St James's have broken through the £100 per sq ft ceiling once again as a handful of core focussed tenants continue to favour location over quality.
• International investors remain dominant, accounting for 65 per cent of Central London based transactions over the last five years with office to residential conversions often transacting ahead of asking prices.
• UK institutional funds, UK REITs and specialist investment vehicles, established as a result of increasing mergers and acquisitions, are now targeting higher yielding, more secondary alternatives as attitudes to risk start to ease.
Sue Foxley, head of research, Cluttons, commented:
"Improving economic sentiment is filtering through to the commercial occupier market as West End transaction volumes increase. However, this upturn is not uniform across the market with a clear reluctance to pay top prime rents amongst all but a select cohort of businesses.
"While cost frames decision making for most in the market, there is little appetite for compromising on the quality of space. Ironically the City core now offers tenants a cheaper alternative to the West End core, but the corporate nature of the space and environment available fails to fit the brief for many businesses. This is driving moves into non core areas, both around the West End and eastwards.
As the cross market migration continues and tenants seek surroundings that meet both staff and public image requirements, it is the market fringes, rather than the prime core, that are feeling the greater pressure on rents. This will be an on-going story. Many companies seeking the combination of value and idiosyncratic space are set to be priced out of the current City fringe, pushing boundaries further, as well as unlocking new market milieus.
Prime central London investment options remain limited as prevalent demand places further downward pressure on yields, with trophy assets often transacting at sub 4%. Offices to residential conversions continue to be subject to bidding wars, often trading in excess of asking prices, while UK institutions and pan-European funds target higher yielding secondary assets as attitudes to risk start to ease."
