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Transaction volumes revived as fringes absorb demand overspill

Revived letting transaction volumes reflect more upbeat sentiment as the occupier and investment markets continue to undergo reorganisation, according to Cluttons in its Autumn West End Office Market Outlook.

Sue Foxley, head of research, Cluttons, said: “Improving economic sentiment is filtering through to the commercial occupier market as West End transaction volumes increase. However, this upturn is not uniform across the market with a clear reluctance to pay top prime rents among all but a select cohort of businesses.

“While cost frames decision making for most in the market, there is little appetite for compromising on the quality of space. Ironically the City core now offers tenants a cheaper alternative to the West End core, but the corporate nature of the space and environment available fails to fit the brief for many businesses. This is driving moves into non core areas, both around the West End and eastwards.

“As the cross market migration continues and tenants seek surroundings that meet both staff and public image requirements, it is the market fringes, rather than the prime core, that are feeling the greater pressure on rents. This will be an on-going story. Many companies seeking the combination of value and idiosyncratic space are set to be priced out of the current City fringe, pushing boundaries further, as well as unlocking new market milieus.

“Prime central London investment options remain limited as prevalent demand places further downward pressure on yields, with trophy assets often transacting at sub 4%. Offices to residential conversions continue to be subject to bidding wars, often trading in excess of asking prices, while UK institutions and pan-European funds target higher yielding secondary assets as attitudes to risk start to ease.”

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