Office demand slows in Q2, but underlying picture remains healthy

As was widely expected, UK office market take-up slowed in mid-2010 after an exceptionally strong start to the year. In the three months to June, occupiers took just 1.3 million ft² (approx. 120,000 m²) of office space, less than half as much as in Q1 and the weakest quarterly performance since the market’s lowest point of early 2009.

“It is, however, important to look below the surface,” comments Andrew Burrell, King Sturge’s Head of Office Research. “We were cautious about the Q1 surge and would also argue that the more recent data do not signal the feared double-dip.”

“Figures have to be analyzed in the context of the UK election and growing concerns about the pace of global recovery,” he continues. ”Not surprisingly these uncertainties have slowed decision-making. But there is already evidence that this pause will be brief, with under-offer statistics for Central London and the South East firmly pointing to a rebound in Q3.”

The failing momentum in Central London - which had been driving the recovery in office demand over the last 12 months - was the key reason for the slowdown in Q2's figures. A flood of big deals in the City and West End pushed the previous quarter to an all-time high, but this unusual strength was not sustained.

By contrast, the biggest surprise on the upside in Q2 was in the Thames Valley. This market emerged from a two-year slump with a string of important deals. Activity has continued into Q3 and it is hoped that this sleeping giant will make a full contribution in the period ahead.

By contrast, a cloud hangs over the regional outlook. Even in the best performers – Manchester and Glasgow – take-up was well down on the previous quarter. The concern is that with the role of the public sector more significant and the Coalition threatening to slash spending across the UK, these centers could fall further behind in the upturn.

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Source: King Sturge