Has London’s commercial property market finally recovered from the pandemic?
High-quality office space in London has “continued and sustained appeal” in London, with property take-up finally exceeding pre-pandemic levels, while retail vacancy rates have similarly dipped to their lowest level since 2019.
Cushman & Wakefield and Savills have both reported that the central London property market has begun to stabilise, while British property investment trust Landsec’s half-year results point to the same trend.
In the third quarter of 2024, a total of 2.56m sq ft of take-up was recorded across central London’s office, up 21 per cent quarter-on-quarter, according to Cushman & Wakefield.
Grade A leasing continued to dominate activity, amounting to 1.8m sq ft – or 70 per cent of take-up – well above the ten-year average of 59 per cent.
Landsec also suggested that political stability post-election and lower interest rates have encouraged investment to return to the market.
“The good availability of credit remains supportive to this [trend], although we are mindful that changes in longer-term interest rates will likely influence the pace at which momentum improves from here,” Landsec said.
Andy Tyler, head of London office leasing at Cushman & Wakefield, warned that lower supply may put pressure on prices, particularly as demand picks up.
“Indicators suggest that supply [of commercial office space] has now broadly stabilised over the last 18 months and we noted a one per cent reduction during Q3.
“With a constrained development pipeline, we should begin to see a reduction in vacancy rate within the next 12 months which in turn should put yet further upward pressure on rental values, especially in key locations,” Tyler said.
Retail property picks up as brands pivot to flagship spaces
Savills found that retail vacancy rates in the West End have fallen to 3.2 per cent, the lowest level since the second quarter of 2019.
The real estate and research firm found that limited supply continues to place upward pressure on rent, with prime rents up 1.5 per cent quarter on quarter. Rents have risen by 13.1 per cent in the last year.
Savills notes that rent for spaces on Oxford street had the highest growth rate, of 19 per cent. This suggests that the trend for retailers to bet on flagship locations continues to be a key part of their bricks-and-mortar strategy.
Sam Foyle, co-head of global retail at Savills, said: “Retailers are responding to evolving consumer preferences, focusing on securing strategic locations to enhance brand presence.”
Marie Hickey, director of research at Savills, added that “demand for top-quality space in key locations, the supply of which remains limited, is expected to persist as occupiers continue to focus on securing long-term leases in prime locations”.
There is an increasing recognition from retailers that an omnichannel approach, with e-commerce sales supported by a few key bricks-and-mortar presences to appeal to customers seeking more tangible shopping experiences, is the way forward, they suggested.
Shops have increasingly been offering in-store experiences: events, product curation and personalisation.
“Online is amazing and it’s extremely convenient… [but] the push has come now towards curation experience and actually making it somewhere people want to go to,” managing director of Freshminds, James Callander, said earlier this year.
Conversion ratios – the percentage of people who make a purchase – remain fundamentally higher in-store, making it crucial for brands can get people back on the high store and into brick-and-mortar.
Landsec, which operates in real estate across multiple sectors, also noted a trend from brand to fewer, bigger and better stores, with “significant upsizes and lettings” from leading brands such as Primark, Pull&Bear, Bershka, Sephora and JD Sports.