London Office Space Market Enjoys 5-Year Investment High

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A record number of foreign investors in 2012 helped the London office space market to experience its strongest year for investment since 2007, according to a new report.

Research from commercial property agency Knight Frank shows that central London received a total investment turnover of £13.8bn in 2012, with the majority of this figure (almost 70%) originating from overseas investors. This rate of overseas investment is reportedly the highest amount ever recorded, and is the fifth year in a row that overseas buyers have put up the majority of overall investment.

Investment partner Stephen Clifton said that London’s inward investment from overseas is becoming a normality.

“Foreign buyers dominating the London office investment market has become an established state of affairs,” he said. “The pound has weakened further in recent weeks, which only increases the logic for overseas investors to buy in London.”

He also attributed the cost of London office space as “attractive” to overseas buyers, when compared to the property market on their home soil. While he says that much of the investment was focused on “safer assets”, he expects 2013 to be another strong year with “investors taking on more risk, including looking at development sites in order to ride the global economic recovery.”

Despite this high level of investment, Knight Frank reports that take-up of central London office space is currently down – a finding shared by numerous other commercial property agencies. However, vacancies were marginally improved, with 2012 showing an office vacancy rate of 7.2% compared to 7.3% in 2011.

This is thought to be the first time ever that the central London vacancy rate has increased while the UK has been in recession.

Despite a decline in overall take-up, The City recorded an increase, and it continues to be a significant source of strength for Central London’s conventional office space market. A growing number of technology, media and telecoms firms are seeking office space in The City, which is helping to bolster the financial district’s take-up figures.

Traditionally, The City was a focal point for financial and insurance firms. Now, businesses from other sectors are keen to occupy City office space to be in close proximity to financial clients, and this is helping to diversify the range of clients seeking space within The City.

Commenting on the research, Knight Frank’s head of commercial research – James Roberts – said:

“A lot of people are surprised that the City has seen take-up rise in 2012, because it is associated with the banks who are known to be cutting staff. However, Clerkenwell, Farringdon and Shoreditch are now firmly established as technology and media districts, and we expect to see this momentum build with the forthcoming 4G roll out.”

Interestingly, he added that businesses from the technology, media and telecoms sectors were the “largest source of demand” for conventional office space in The City last year, accounting for a massive 22% of leasing activity.

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