At its annual presentation, in conjunction with corporate broker Oriel Securities in the City of London (Thursday 17 January 2013), Savills highlighted a flight to the fringe from occupiers in the Central London office market that is set to continue throughout 2013 and beyond. The firm notes that this is a result of tenants finding the competitive rental terms of the high quality office space in these non-core locations more appealing as well as a lack of supply that is particularly evident in the West End. In the investment market, the firm predicts continued activity from overseas investors who are attracted to the capital's 'safe-haven' status with Central London remaining as the number one destination for cross-border investment in 2012. 

According to Savills, the office leasing market saw prime rents across London increase on average by 4 - 5% during 2012 with top rents in the City and West End currently standing at £70 per sq ft and £110 per sq ft respectively. This rental increase has acted as a further catalyst in the drive from occupiers to fringe markets such as Paddington, South Bank, Kings Cross, Vauxhall, Victoria and North Oxford Street. The City also saw a rise in occupation outside of the traditional EC3 market with EC1 and EC2 both reporting a rise in take-up during 2012.

Mat Oakley, head of commercial research at Savills, comments: "The austerity-led drift to fringe markets in Central London will continue over the next few years and as a result we are likely to witness stronger rental growth in the fringe than in the core. The lack of supply in both the City and West End markets will continue to drive an increase in rents, however we expect it will be slower than previous recoveries.


When assessing specific sectors, Savills confirms that demand in the West End was fuelled by the TMT sector, accounting for 24% of take-up, though the biggest growth in take-up was from the retail sector, which took a 17% share.  In terms of the City market, the insurance and financial services sector dominated accounting for 32% of overall take-up, followed by the professional sector with 22%.

Savills notes that there had been a pick-up in refurbishment and redevelopment activity across central London, and that vacancy rates were likely to remain broadly stable in 2013 and 2014 as a result of this.

In terms of the investment market, Savills states that international buyers accounted for 141 of the 318 transactions completed in Central London during 2012. Domestic investors also continued to be active accounting for 24% of overall transactions. However, Savills highlights the issue of bank refinancing which will continue to limit debt-backed purchasers.

Mat continues: "Throughout 2012, overseas investors were very much focussed on prime properties with long-leases and strong covenants, while UK purchasers focussed on smaller, multi-let, more secondary properties that have good redevelopment or asset management potential. However, looking forward, we do expect to see the prime-focussed investors becoming more adventurous and widening their requirements to include non-core locations and assets.

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