City offices take-up rises but demand remains below average – Savills

Savills’ latest report on the market for office space in the City of London notes that take-up in December reached 500,000 sq ft, taking the total for 2012 to 4.63m sq ft, back in line with the ten-year average and 18% above the previous year’s figure.

Active demand for City offices from the banking sector remains subdued, at just 2% of the 2.36m sq ft currently focused on the Square Mile; Savills says total demand with the potential to focus on the City remains about 18% below the long-term average.

Last year’s largest deal was in the insurance sector, with the letting of 289,000 sq ft at the St Botolph building to JLT. Savills says insurance and professional occupiers accounted for the three largest deals in December, too – altogether the insurance and financial services sector took 32% of the City office space leased during 2012, while the professional services sector accounted for 22%. Banks can typically be expected to take around 13% rather than the 2% actually leased last year, the firm points out.

Of the total current active City demand, 40% comes from professional sector occupiers, 31% from the insurance and financial services sector, and 15% from the TMT sector, Savills says.

Savills expects some lettings of below 40,000 sq ft at the Shard, the Heron Tower, 10 Aldermanbury and 200 Aldersgate to boost occupier confidence this year; it also says the undersupplied submarkets in EC2 and EC3, which are expected to deliver 421,000 sq ft and 503,000 sq ft respectively of newly refurbished or developed offices by the end of 2013, are likely to “remain in balance”.

Any rental growth in the first half of 2013 from the estimated average prime level of £54.30 per sq ft at the end of December is likely to be “muted”, the firm says – it expects prime rents to rise just 0.8% and top rents to remain flat.

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