Quarterly Review: Q3,2024
The latest data have shown some improvement in global activity with the US holding up well, the euro-zone exceeding weak expectations and China starting to respond to policy support. The inflationary implications of President-elect Trump’s mooted policies mean the Fed is likely to cut interest rates more slowly then originally anticipated. Meanwhile, in the UK, the Budget looks set to boost both GDP growth and inflation over the next couple of years.
Central London office leasing activity rose for the third consecutive quarter in Q3, helped by a recovery in take-up in the West End. The improvement in take-up has helped to bring down the amount of available space in Central London to a two-year low, and strong demand for new, prime space is supporting a substantial pipeline, with 2024 and 2025 both set to see around 6m sq. ft. of new supply.
In line with Central London, regional office markets also saw a rise in take-up in Q3. Of the nine largest regional cities, five saw an increase in take-up in Q3, with Manchester and Birmingham achieving significantly higher take-up relative to their respective five-year averages. Availability also fell back in the Big Nine regional cities, and supply looks set to tighten further with only 940,000 sq. ft. set to complete over 2025 and 2026.
In other sectors, logistics take-up edged back in Q3, and the amount of available space is now up by around 150% compared to two years ago. The Central London retail vacancy rate edged up by 10bps in Q3 to 10.0%, but that is still lower than the Great Britain average of 11.6%.
Investment in Central London offices increased to £1.4bn in Q3, from £930m in Q2. But that only takes transactions back to where they were at the end of 2023. Overall retail investment had a strong Q3 but, in line with a weak outturn for UK-wide high street shops, London underperformed. Office investment outside of London dropped back in Q3 and remains historically low, with investors holding back on concerns over interest rates and capital values.