Industrial: Occupational market muted in Q3
Take-up of Logistics and Industrial properties in the United Kingdom totalled 6.2m sq ft during Q3 2024 across 43 deals, the lowest quarterly volume since Q1 2020. Despite a markedly slow quarter with volumes impacted by ongoing uncertainty in the UK economy, take-up during 2024 is both 18% higher than at this point in 2023 and is 5% above the 5-year Q1-Q3 pre-pandemic average.
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Retail: Investment market well positioned to capitalise on recovery
The retail investment market continues to see elevated levels of liquidity, and strong asset performance across its major sub sectors. Despite the lack of supply, the sentiment amongst investors is that the sector has now reached the bottom of the cycle and in place has begun to recover.
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UK Office Space
Prime headline rents have increased by 4.3% over the past year. The ‘flight to quality’ towards Grade A space in Central London has continued to reflect in upwards pressure on rents, with headline rents in the City and the West End increasing to £85.00 psf and £142.50 psf during Q3. Headline rents held in the Big Five during Q3, with Bristol still setting the highest rent across the regions at £48.00 psf.
Take-up in Q3 2024 totalled 3.7 million sq ft of office space in Central London and the ‘Big Five’ regions (Birmingham, Bristol, Edinburgh, Leeds and Manchester), This figure is 26% above both Q2 take-up and the five-year quarterly average.
Availability across the Big Five decreased by 7% on the previous quarter to 7.1 million sq ft, equating to a 9.0% vacancy rate. Central London also experienced a decrease in availability, with the 27.0 million sq ft available equating to a 9.3% vacancy rate.
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Prime Central London Residential
Average achieved £ per square foot values in Prime Central London residential increased significantly during Q4 2020 (from Q3 2020) buoyed by a strong Autumn market. While a quarterly rise in isolation does not necessarily indicate a continuation of recent house price inflation, it acts a strong indicator of overall market strength. While our 365-day index of rental values shows rental prices remaining in a state of lockdown induced freefall, the average £ per square foot, per annum value achieved in Q4 2020 indicates we may be about to see the bottom of the market. With lockdown restrictions potentially being eased in April, we would anticipate a return to rental inflation towards the end of May. The combining factors of stable values and falling rents has seen gross rental yields in Prime Central London fall below 3% for the first time in recent history. This contraction is even greater in Outer Prime London markets, where these combining trends are exaggerated.
Europe Office Market
Demand for office space across Europe remained subdued. Despite a modest 6% increase in leasing activity to 2.5m sqm in Q3 2023, overall activity is trending lower. Over Q1-Q3 2023 leasing activity totalled 7.2m sqm, down 21% from 8.9m sqm in the same period for 2022. We see a clear bifurcation in activity. Although demand for all grades of asset fell, activity for Grade A was down a more modest 6%. The amount of available space grew (+1.1%) over the quarter to stand at 24.7m sqm.
Despite the reduction in demand, rents at the prime end of the market continue to hold up. Rents grew by a further 0.9% in Q3 versus a 1.4% increase in the previous quarter. Annual growth remains strong at 5.4%.
We expect leasing activity to remain subdued over the rest of the year and into 2024 as businesses await more clarity in the outlook. We expect positive rental growth to be sustained at the prime end of the market as the shift towards hybrid working supports demand for the best in class and sustainable space in most connected locations.
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UK Hospitality Market
In Q3 2024, UK hotel real estate transactions reached approximately £732 million, marking a 93% increase compared to the same period in 2023. This surge, driven largely by single-asset deals in London (51% of the total in Q3), Edinburgh, and smaller regional sales, contrasts with the large-scale portfolio transactions that dominated the first half of the year. While full-year deal volumes are expected to surpass £5 billion, activity — excluding major portfolio trades — has been more nuanced, reflecting pricing challenges and a bid-ask spread. With the year-end approaching, market sentiment is shifting toward a more bullish outlook, supported by improving buyer-seller alignment, lower interest rates, and resilient hotel performance. Despite remaining uncertainties, optimism is rising as the ‘wait and see’ mentality fades.
