London Weathers Storm As City Leasing Stays Strong

Demand for City office space in London is holding strong, with around 2.5 million square feet of new properties let during the first half of the year. Many developments that are under construction continue to see steady leasing, nixing earlier fears the credit crunch would create chronic oversupply of space in the financial district.

Although the 2.5 million square foot figure represents a drop from the 3.8 million square feet leased during the same period last year, it shows a good level of demand given current economic circumstances. "It's well down on peak levels of the last few years, and a million down on '07 levels. But bear in mind the long term average for the City for the full year is around 4.2 to 4.3 million square feet," said Mat Oakley, research director at Savills in London. "In 2003, at the bottom of the last cycle, letting was only 2.8 million square feet for the entire year."

According to James Oliver, city agency director at DTZ, City take-ups could reach four million square feet by year-end. "There is around a further 1.6 million square feet under offer that we expect to go through to completion during the course of this year. We feel relatively confident," he told REFI. Mark Pollitt, partner at Cushman & Wakefield, added: "It's not untypical in a market to let just before or after completion. It's only when market is very frothy you get substantial pre-lets."

"Developers are expecting it to be harder than two years ago, but things like Hammerson's redevelopment of the Stock Exchange [125 Old Broad Street] has been pre-letting quite well," Oakley said. Last week King & Spalding took 34,000 square feet there, joining DTZ and French law firm Gide Loyrette Nouel (REFI 9/1), and Oakley said demand for space from legal firms in particular has been strong.

Oliver anticipates the remaining 80,000 square feet at 20 Gresham Street, a 238,367-square-foot office development due for delivery later this month, can be filled following Standard Bank's take-up of 150,000 square feet there. "We've been pleased about Gresham Street. There are three floors remaining, and we expect further success prior to Christmas."

Although there's between 5.5 to 6 million square feet expected to come to market over the next two to three years, Oliver pointed out things are not as bad as in the early 1990s. "There was a three-year period in the early 1990s of 18-20 million square feet being delivered," he said. "So while demand has been affected, the supply side is not nearly as much in the early 1990s."

--H.L. 

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