In the Central London investment market, annual volumes for Central London offices were running at £6.26 billion at the end of Q2 2024, 2% ahead of the prior quarter which was the smallest investment market on record. This pick-up in activity, albeit only slight, is providing some positive sentiment to take into the second half of 2024. However, high interest rates will continue to subdue volumes in the interim.
The attractiveness of a strong occupational demand and rental growth in some Central London locations is currently fuelling demand, creating some competition of assets on the market. Furthermore, there are also other examples across the market of core plus assets generating strong interest and beginning to trade, providing some positive sentiment for the market. Core income, well-located, high quality, grade A assets are also continuing to see good levels of interest.
In the leasing market, following on from a strong 2023 take-up of 3.78 million sq ft in H1 2024 was aligned with volumes recorded in the first half of 2023. Whilst this was down by 21% against the ten-year H1 average, grade A leasing volumes of 2.62 million sq ft were up by 1% against the same metric. Proportionately, grade A leasing is also up on historic trends.
This strong demand for grade A offices, together with a tight development pipeline over the next five years and record high levels of active demand (c. 13 million sq ft), is fuelling the rental growth story. In the City, average annual rental growth of 4.4% is forecast for prime assets in the next five years compared with 7.9% for super-prime assets; whilst in the West End, figures of 4.0% and 7.3% are forecast, respectively.
