Even in the City, which has the highest vacancy rate of all the central London office markets, pre-letting activity has seen more than 1m sq ft taken up in the past six months as occupiers, such as SMBC, Sidley Austin and Mimecast have locked in.
Meanwhile, non-core locations continue to drive the absorption of built space with Farringdon, Shoreditch and Holborn all seeing a rise in occupation levels. Grade A supply in Farringdon has dwindled to near zero, with City Fringe Grade A availability down by 25% between Q4 2017 and the end of this March.
When property supply dwindles, rents have a tendency to go up. Accordingly, overall headline office rents across London rose modestly across Q1 by about 1% on average, but this still represented the highest positive movement for more than two years. Top West End rents rose to £120 per sq ft, reaching an 18-month high. City Fringe locations also saw prime rents head above £70 per sq ft – in excess of the City core benchmark of £68.50 per sq ft.
So is everything in the garden rosy? Well, not entirely.
The impressive pre-let figures and modest vacancy levels mask the fact that the demand for secondary offices is extremely thin. There is a widening gulf between appetite for Grade A space and lesser quality product. Canary Wharf has seen a steady downward trend in occupation levels since the start of 2016 and the release of secondary stock across London. All Grade absorption continued to be held back by non-Grade A stock, as well as the vacating of built stock, now earmarked for redevelopment.
However, the release of used offices onto the market is now slowing dramatically. In Q1, the supply of secondhand space rose by just 0.2% quarter-on-quarter – which is in stark contrast with the 19% jump in Q1 2017 when business was running scared from the referendum result.
So looking ahead, we expect demand for office space is consistent - further major London office lettings are anticipated – and we should see a continued stabilisation in vacancy levels, aided by dearth of new speculative supply. Demand for office space is consistent, with further major lettings anticipated for Q2 2018.
However, the spectre of Brexit still looms over the market. Uncertainty, while having diminished, still remains a concern for occupiers and expansion plans.