Leasing activity in the capital city of London reached 13.84 million square feet last year, defying predictions made after Brexit, new research has revealed.
This has outperformed 2016 by over two million square feet and combined with continuing demand from the Technology, Media and Telecommunications (TMT) and biotech sectors means there is a risk of a supply shortage as companies increasingly look at pre-lets.
The analysis from Knight Frank confirms that the office market in central London has been particularly robust in the face of Brexit and the current pace of job creation is likely to outweigh any lost to overseas markets following the UK’s decision to leave the European Union.
4.1 million square feet of London’s office market were acquired in 2017 which is 31% higher than the average. This has been boosted by the TMT sector which is increasingly seeking higher volumes of office space.
Although there are over 259 development schemes under construction in central London, the report highlights that there is a lack of quality office space supply. Of the 259 development schemes, 187 are residential and 72 offer commercial space but only two thirds are available to lease with many of them already pre-let to office tenants.
The development pipeline has meant that more than a quarter of these buildings will not be available until 2020.
“Central London’s office market witnessed a high volume of activity in 2017 with record take-up by TMT firms. Whilst this shows tremendous confidence in London after the European Union referendum, supply also peaked in 2017 and is now in the process of falling,” said Stephen Clifton, head of central London at Knight Frank.
“This implies that going forward there will be increased demands for pre-lets as there is a lack of quality supply in the pipeline, and this will put pressure on developers, landlords and operators in the market,” he explained.
“It is clear that occupiers are increasingly considering their real estate strategy a core part of their business decision making process, whether that be the design, co-working space or amenities. As such, landlords must adapt to accommodate occupier requirements and ensure that the central London office market continues to flourish,” he added.