LEASING activity in the City and West office market remained sluggish in the first quarter of 2012 as tough economic conditions continued to dampen appetite for new space, according to research by Knight Frank.
The property agent said take-up in the West End stood at 1m square feet in the quarter, down from 1.3m sq ft in fourth quarter of last year. Prime rent was flat at £92.50 per sq ft.
In the City, take up also fell to 1m sq ft from 1.5m sq ft in the latter part of last year. Prime rent remained at £55 per sq ft.
Despite the low demand for space, Knight Frank said it was confident that signs of an improving economy in the quarter will buoy demand for office space in London as the year continues.
It forecast a fall in office supply in the City and West End this year.
Tim Robinson, head of West End leasing, said: “A small drop in take-up was inevitable given the difficult economic backdrop, but we are seeing continued strong demand emerging from the technology sector, with household names like Wonga, Money Supermarket and TomTom all active.”
Robinson pointed out that while supply increased, it is still very low by historic standards with the vacancy rate at less than six per cent, compared to a long-run average of eight per cent.
“The constrained development pipeline will keep supply levels in check going forward,” he said.
William Beardmore-Gray, head of City leasing, remained upbeat in his outlook for the City office market.
“A number of insurance and law firms have large office searches in the City, with deals expected to go under offer in the coming months. Consequently, we expect demand to recover as the year progresses, steadily pushing down supply,” he said.