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Central London MarketBeat Quarterly Report

Hayley Armstrong • 04/02/2021

Lockdown measures halt recovery in final quarter

The economy contracted in November after six months of recovery-driven growth. GDP fell by 2.6% month-on-month due to the effect of the second lockdown, driven by a slowdown in the services sector which shrank by 3.4%. Given the stricter restrictions introduced in December, growth is expected to remain weak over the next few months. Despite this, at the end of November GDP was 22% higher than its April low, although it remains 9% below its February level.

The extension of the government’s job retention scheme is believed to have slowed the rise of the unemployment rate, which was 4.9% at the end of October, although early estimates for November suggest a slight drop in the number of payroll employees. The unemployment rate has risen sharply during 2020 and is now at its highest level since 2016 although it remains comfortably below its peak of 8.4% in the years following the global financial crisis. 

 

Activity continued to fall although sentiment has started to strengthen

Leasing activity during 2020 has been significantly impacted by both COVID-19 restrictions and Brexit uncertainty. Take-up fell to 567,794 sq ft in the final quarter of the year, the lowest quarterly total on record and 78% below the five-year quarterly average of 2.5 m sq ft. This took the total leasing volume for the year to 4.4 m sq ft, the lowest annual total on record. 

There were encouraging signs that sentiment had started to improve towards the year-end, which should help drive activity in 2021. The Brexit trade deal has removed a degree of uncertainty from the market, while a growing number of businesses indicated their intentions to return to the office once restrictions are lifted. The rollout of the vaccination programme, along with Latham & Watkins’ pre-let of 430,000 sq ft at 1 Leadenhall after the quarter-end, have also helped to bolster sentiment.

 

Limited leasing activity continued to place upward pressure on supply

Availability rose for the third consecutive quarter to 18.2 m sq ft, a quarter-on-quarter increase of 8% and 34% higher than March 2020. The rise reflects both ongoing subdued leasing activity and the release of some tenant space back to the market. The vacancy rate is now 6.5% which is the highest since 2010, but well below the peak of 7.7% seen during the Global Financial Crisis and the 10.7% seen in the early part of the last decade. The availability of new and refurbished space rose slightly to 2.9%, just slightly above the five-year average of 2.4%.

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