Quarterly Review: Q2, 2024
The latest data generally suggests that global growth will be positive but unspectacular in the second half of this year. The headline data for the UK has recently been improving, albeit with some caveats around labour productivity and the sustainability of GDP growth. After cutting rates by 25bps in August, the Bank of England looks set to cut again before the end of the year.
After a slow start to the year, Central London office demand picked up in Q2, driven by the City. Demand is still subdued compared to pre-COVID levels, but under offers also increased, implying take-up will see a further rise over the second half of the year. New, prime space continues to be the most in demand with only around half of all deals for second-hand offices, compared to an average of around 65% over 2018 and 2019.
Outside of the capital office demand softened in Q2. Take-up in the South East dropped 7.5% q/q, and in the 10 largest regional cities take-up declined by 4% q/q in Q1. Developers are now responding to that moderation in demand, with under 1m sq. ft. of space planned to complete in 2025.
In other sectors, logistics take-up increased in Q2 to 7.3m sq. ft, from 4.5m sq. ft. in Q1 2024. But that didn’t prevent a further rise in availability and the vacancy rate. Meanwhile, hotel occupancy and revenues have continued to improve in both London and the rest of the UK, with golf & spa and upscale hotels outperforming.
Investment in Central London offices ticked-up in Q2 to £1.1bn, but that is still low by historical standards. Office investment outside of London also stayed relatively low, with investors holding back on concerns over whether capital values have found a floor. Retail investment performed better, helped by several deals for New Bond Street shops and regional shopping centres.