The London commercial property, which was adversely impacted by the pandemic, showed signs of recovery in recent months, according to the latest report from Savills. This is a major relief for the property sector, which had been dampened by weakened demand in the non-residential market.
Investment volumes in the Greater London & South East and regional office market reached £3.27 billion at the end of September 2020, 49 per cent above the third quarter 2020 total, according to Savills research. These flows are indicative of positive projections for the New Year, with a general expectation of a strong return in 2021.
Prime yields in the City remained at 4 per cent, representing a premium relative to the average prime office yield across major European markets at 3.5 per cent. This yield gap continues to attract international investment into the UK office market. Overseas funding accounted for 39 per cent of total investment between January and September 2020 sustaining its status as the largest proportion of capital invested in three of the last four years.
The Savills Market report outlines higher than expected take-up recovery in July-September 2020, reaching 489,000 sq ft for Greater London and South East Offices, doubling take-up recorded in April-June 2020. With a restricted development pipeline, and supply levels currently 8 per cent below the five-year average, a significant shortage in Grade A stock available across the capital has maintained stability in headline rents in July-September 2020. There are 2 million sq ft of available space under construction and due to complete in 2022; equivalent to just seven months of take-up in a normal year.
Based on data from the office platform Kitt, commercial space in the West End of London has now surpassed early 2020 demand levels with enquiries at 132 per cent of those in January. Offices are adapting by prioritising lounge space, collaboration zones, coffee areas and green space to create appealing and productive environments in this new Covid-secure landscape. Green shoots of growing demand are especially evident with enquiries from businesses of 21 - 80 people increasing 117 per cent, and demand for self-contained offices up 175 per cent in October alone.
With the month-long national lockdown ending and vaccination against Covid-19 set to commence from the next week, the UK property market is likely to experience an upward trend in 2021.
Demand is returning to the market with an uptick in requirements recorded, according to Savills