_Central London Offices: Supply Review

• Unprecedented number of occupier requirements across Central London over 50,000 sq ft
• Steady demand for new and refurbished stock putting pressure on the supply of larger units in many Central London sub-markets
• Occupiers must activate searches well in advance, as nearly half of all deals over 50,000 sq ft transact pre or during construction

At the end of Q3 2017 active demand was 7% above the long-term average of 7.9 m sq ft.

Occupiers are still committing to London, and continuing to pursue large office units to satisfy their requirements. There is particular pressure on the availability of units above 50,000 sq ft, with options for occupiers becoming increasingly limited.

Knight Frank is currently tracking over 50 active requirements in excess of 50,000 sq ft across the Central London market. Over the last 10 years, the average number of active requirements above 50,000 sq ft at year-end has never peaked above 44.

Over the last 10 years across Central London, there has been an average of 17 transactions over 50,000 sq ft complete in a 12-month period, with 20 transactions completing in 2016. As at the time of writing, there have already been 17 units of this size transact so far this year.

Since 2007, nearly 63% of deals over 50,000 sq ft have been of new and refurbished stock, maintaining the pressure we have seen recently being placed on the development pipeline.

Furthermore, it is also important to note that 42% of these sizeable deals have transacted either before or during construction.

As the size of the requirement increases above 50,000 sq ft, the number of options begins to quickly decline. This is certainly the case in the West End, with particular sub-markets simply unable to offer any sizeable units to larger occupiers.

The majority of larger units are currently located in the City Core and new and developing markets such as Stratford, White City and Battersea.

There are currently 24 unique requirements for units in excess of 100,000 sq ft across Central London; 13 of these are focussed on options in the City market. At the end of Q3, there were 19 buildings capable of satisfying such a requirement.

Options are limited outside the City Core for large occupiers but Central London’s traditional boundaries are expanding. Commercial occupiers are increasingly footloose with many more relocating to a different submarket compared with five years ago, with the focus now much more on the delivered product and price.

With the right product available, Central London has become open to all industry sectors as well as offering opportunities to new and emerging sectors. The restricted pipeline will continue to push occupiers and developers to look at the expanding Central London market.

We are yet to see the full implications of Brexit, but with consistent levels of demand, coupled with downward pressure on future stock, we believe supply has most likely peaked.

Occupiers looking for sizeable units, especially of new and refurbished stock, should be open to considering other parameters outside of pricing, including location, product and lease type.

Options for large occupiers are diminishing in Central London, firms must look to launch their office search well in advance of future lease events to maximise their chances of securing suitable accommodation.

Read the latest Knight Frank Central London Quarterly Q3 2017 Report