Quarterly Review: Q4, 2024
The latest data suggest that, outside China, the world economy lost a bit of momentum heading into 2025. In the US, with downward progress on core inflation stalled the Fed will likely remain on the sidelines for at least the next 12 months. Meanwhile, in the UK despite recent data suggesting inflation will remain above target a sharp deterioration in jobs growth suggests the Bank of England will continue to cut rates gradually over the next year.
There were tentative signs that London office leasing activity was picking up toward the end of last year, helped by a resurgence in the City. The improvement in take-up has helped London availability and vacancy rates stabilise, but they remain historically elevated. Due to construction delays a large amount of office space is due to complete this year, but beyond that the pipeline is much thinner.
South East office take-up saw a small rise in Q4, but it remains considerably lower than the pre-pandemic average. By contrast take-up in the Big Nine regional cities is now in line with the 10-year average. The regional office pipeline looks very thin, which implies there may be supply shortages in the future, particularly for prime space.
In other sectors, Central London retail availability across all major retail streets was under 9% in Q4. Logistics take-up dropped for the second quarter in Q4, which left take-up more-or-less unchanged compared to 2023 and still under the level seen just prior to the pandemic. But developers are becoming more confident about the demand outlook, with the pipeline expanding from 18.9m sq. ft. in Q2 2024 to 26.0m sq. ft. in Q4 2024.
Investment in Central London offices dropped to £1.0bn in Q4, from £1.5bn in Q3. Transactions therefore remain subdued, with the total of £4.3bn invested in 2024 down from £11.4bn in 2019. Overall retail investment had a strong Q4 but that was concentrated in retail warehouses and shopping centres, so London retail underperformed. Office investment in the regions edged up to £610m across the South East and Rest of UK in Q4, but that still left investment historically low.