Industrial: Occupational market continues to recover
Demand for Logistics & Industrial units of 50,000 sq ft and above totalled 10.8 million square foot during the first quarter of 2024, from 63 transactions. The Q2 2024 volume is a 17.5% improvement on the Q1 value and also outperforms both the 10-year and 5-year pre-pandemic Q2 averages.
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Retail: Occupational market remains strong despite muted sales volumes
The recent election resulted in a large Labour majority. While the market’s reaction is still uncertain, the new leadership is expected to boost economic recovery sentiment. Retail sales volumes have been flat, but May figures show a short-term improvement, with average weekly sales volumes about 7% higher than both April and May of the previous year.
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Office Space
With occupiers increasingly focusing on ‘best-in-class’ space and the amenity offer and specification of buildings rising, prime headlines rents across the markets increased by 4.5% on average over the past year, at £140.00 psf in the West End, increasing to £82.50 psf in the City and hitting £48.00 psf in Bristol – the highest achieved across the regions.
Take-up in Q2 2024 totalled 2.8 million sq ft of office space in the Big Five (Birmingham, Bristol, Edinburgh, Leeds and Manchester) and Central London. This figure stood 19% above Q1 2024 but was still 5% below the five-year quarterly average.
Overall availability totalled 7.3 million sq ft across the Big Five, up 8% on the quarter and amounting to a vacancy rate of 9.2%. In Central London, the strength of the development pipeline has pushed up supply in the short-term, which stood at 27.3 million sq ft in Q2 reflecting a 9.4% vacancy rate.
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Prime Central London Residential
Average achieved £ per square foot values in Prime Central London residential increased significantly during Q4 2020 (from Q3 2020) buoyed by a strong Autumn market. While a quarterly rise in isolation does not necessarily indicate a continuation of recent house price inflation, it acts a strong indicator of overall market strength. While our 365-day index of rental values shows rental prices remaining in a state of lockdown induced freefall, the average £ per square foot, per annum value achieved in Q4 2020 indicates we may be about to see the bottom of the market. With lockdown restrictions potentially being eased in April, we would anticipate a return to rental inflation towards the end of May. The combining factors of stable values and falling rents has seen gross rental yields in Prime Central London fall below 3% for the first time in recent history. This contraction is even greater in Outer Prime London markets, where these combining trends are exaggerated.
Europe Office Market
Demand for office space across Europe remained subdued. Despite a modest 6% increase in leasing activity to 2.5m sqm in Q3 2023, overall activity is trending lower. Over Q1-Q3 2023 leasing activity totalled 7.2m sqm, down 21% from 8.9m sqm in the same period for 2022. We see a clear bifurcation in activity. Although demand for all grades of asset fell, activity for Grade A was down a more modest 6%. The amount of available space grew (+1.1%) over the quarter to stand at 24.7m sqm.
Despite the reduction in demand, rents at the prime end of the market continue to hold up. Rents grew by a further 0.9% in Q3 versus a 1.4% increase in the previous quarter. Annual growth remains strong at 5.4%.
We expect leasing activity to remain subdued over the rest of the year and into 2024 as businesses await more clarity in the outlook. We expect positive rental growth to be sustained at the prime end of the market as the shift towards hybrid working supports demand for the best in class and sustainable space in most connected locations.
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UK Hospitality Market
Transaction volumes in the UK hotel real estate market have seen a significant surge in H1 of 2024, reaching levels unseen since 2015. This upswing in activity has proven hotels as a leading asset class, having surpassed that of Office, Retail, Industrial, Residential and PBSA deal volumes. It is noteworthy that portfolio deals were a major catalyst, making up almost 2/3 of the total investment. With further deal activity expected in the second half, C&W anticipate full-year volumes to surpass the £5 billion mark.
