Property investment in the London office market will remain an attractive prospect in 2013, with the second half of the year performing better than expected and speculative development to restart in the city centre. According to Jones Lang LaSalle's property predictions report, over the last 12 months the capital has seen the strongest growth in employment and office transactions. While occupiers remained cautious and growth was by no means extraordinary, the rapidly expanding TMT sector (technology, media and telecommunications), mergers and acquisitions, and corporate consolidation activity will help to improve this year's outlook.
Across the country figures have shown that an intensification of grade A office shortages will occur if development remains on hold, but without a recovery in demand, overall vacancy rates will fall and rental pressure will be limited. However, central London will buck this trend. Overall supply increased in the capital during 2012, thanks to significant new completions. Nevertheless, vacancy rates are below their long term average and key grade A units are under offer. Only 4.3 million square feet are set to come online in 2013, with a further 1.8 million square feet in 2013 and 188,000 square feet in 2015. There is nothing under construction beyond this and there will not be enough supply to meet any upturn in demand. Consequently, Jones Lang LaSalle expects speculative activity to begin again.
Prime rents will also increase, thanks to falling supply and recovering demand levels. Prime markets will grow by approximately 4.4 per cent in the City and 5.3 per cent in the West End by the end of 2013. While the average rental trend is lagging slightly, growth prospects remain positive and in excess of most other UK commercial segments.
Andrew Burrell, head of UK forecasting at Jones Lang LaSalle, added: "A couple of forces for recovery stand out. Firstly, a gradual improvement in consumer demand is forecast as real incomes benefit from higher employment and lower inflation, with price increases falling toward the government’s target for the first time since 2009. Second, strong corporate balance sheets are expected to boost business investment as sentiment slowly rebuilds. "