The City office market is undergoing “Manhattan-isation” as demand for office space diversifies beyond the traditional finance sector, the latest research from Knight Frank indicates.
The Square Mile, traditionally a financial core, has been attracting a variety of new tenants, such as those from the legal and technology sectors.
The diversification comes as demand from occupiers for office space reached a 14-year high and nearly doubled the long-term 1.7m sq ft average in the third quarter.
Office take-up in period jumped 39% from 2.2m sq ft in the previous three months to 3m sq ft, helped by demand from the likes of Amazon and London Business School.
But Knight Frank’s research also highlighted the shortage of office supply which fell to 8.7m sq ft in the third quarter – well below the financial crisis peak in the third quarter of 2007 of 13.4m sq ft and representing a current vacancy rate of 7.3% which is below the 9.2% long-term average.
Dan Gaunt, Knight Frank’s head of City agency said: “I see this as evidence of the Manhattan-isation of the City office market, where finance is now one of several sources of office demand now the square mile’s economy has drawn in a variety of new industries, as is the case in New York’s key office markets.
“Based on nine months data in the year so far, the City has seen 6.9m sq ft of office space acquired, compared to 5.8 m sq ft for the whole of 2012.
“Occupier demand has come from a variety of industries, including those that in the past were not associated with the City, as shown by large pre-lets by Amazon at Principal Place (431,000 sq ft) and M&G Investments (330,000 sq ft) at 10 Fenchurch Avenue. Amazon also took 86,000 sq ft at Leadenhall Court, while London Business School acquired 88,000 sq ft at 40 Tower Hill.”
Bradley Baker, head of central London tenant representation at Knight Frank, added that occupier confidence had strengthened recently which had translated into increased market activity.
“We expect this to continue into 2015 as well advised businesses look to secure high quality space ahead of anticipated rental growth,” he said.