An overview of the commercial property market in West End

During 2012, a number of trends were evident in the London's West End commercial property market. In the first place, there has been a notable increase in the volume of transactions and in occupier demand and take-up and supply rates, as well as in vacancy rates. The cost of prime rents remained stable, while the amount of commercial floor space under construction experienced a decrease.

The trend related to occupier demand is particularly interesting, as traditionally commercial property transactions in the West End were characterised by requirements of 50,000 square feet or less. However and since the beginning of 2012, there has been a rising number of enquiries for commercial floor space that exceeds the 100,000 square feet mark. Currently, occupier demand levels are at a record high.

As of September 2012, prime yields for commercial property in the West End were set at 4.75 per cent, slightly lower than in the City. Up to 66 per cent of the total number of commercial property acquisitions in the West End are carried out by foreign investors, with the largest volumes of capital coming from South Korea, Malaysia, and China.

Office space in London's West End

The current year has seen important changes in the availability and take-up rates of office space in London's West End. During the first three quarters of the year, take-up was down by 5.8 per cent when compared to the same period in 2011. The second quarter of 2012 has been particularly slow, but after September take-up rates rose substantially, reaching the figure of 791,000 square feet, an impressive 88 per cent increase over the previous quarter's figures.

The exceptional take-up rates experienced during the third quarter of 2012 also translated into a decrease in vacancy rates, which went from 5 per cent to 4.6 per cent in just three months. All in all, there are approximately 3.8 million square feet of office floor space currently available in London's West End.

Rental prices are among the highest in the United Kingdom, as they range between £95 and £110 per square feet, including average rent-free periods of 16 months. These high prices are possible given the relative shortage of office floor space in the West End. The upward trend in rental prices has been especially evident since 2011, when a global real estate market review published by Knight Frank revealed that London's West End was in fact the world's most expensive market, having overtaken Tokyo, Hong Kong, and the City of London. Analysts predict that this rising trend in the cost of prime rents will continue well into 2013, and prime rent prices may increase by a further 1.8 per cent each quarter.

Almost half of the total number of enquiries for office floor space in the West End come from companies in the TMT market. During 2012, an additional 1 million square feet of office space were made available in the West End in order to accommodate growing demand.

As for the office investment market, research by Jones Lang Lasalle shows that much in line with other areas of London, foreign capital continues to gain importance in the West End. During the month of July alone, the total volume of foreign-fuelled investment transactions in the West End's office market reached £230 million.

Retail space in London's West End

Despite the economic downturn, the retail sector in the West End continues to experience growth, and recently the area has secured a £25 million investment that will surely have positive repercussions in the retail property market.

Currently, London's West End is the world's fourth most expensive retail property market, as annual rents can reach £554. The outlook for the next five years looks positive, as retail vacancy rates have almost halved since 2007, and floor space vacancy rates have dropped by an astonishing 74 per cent. Property analysts affirm that as long as developers can keep up with the demand for increasingly larger retail units, the property market in the area will continue to expand at fast rates.

Industrial space in London's West End

Warehouse and industrial floor space is very scarce in London's West End, as this area has been traditionally dominated by retailers and office occupiers. At the time of writing, there were no industrial property developments under construction or planned in the city's West End. Existing industrial floor space is characterised by its small size and by being mostly taken up by companies that produce specialist goods, such as designer clothing and jewellery, and by businesses in the creative and digital sector.

Given the fact that there are other areas of London where industrial property dominates over office or retail space, it seems highly unlikely that demand and / or availability for industrial floor space in London's West End will increase in the future.