Quarterly Review: Q1, 2023

Quarterly Review: Q1, 2023

Q1 GDP releases have confirmed that the major economies avoided recession at the start of the year and some of the more recent survey data suggest that this resilience continued into Q2. But monetary indicators confirm that policy is becoming a stronger headwind to economic activity and that suggests the major economies will struggle to grow in the months ahead.

Central London occupier activity had a slow start to the year, with office take-up in Q1 down 35% q/q. West End demand is partly being constrained by a tight market, but that is not the case in the City where availability has doubled since 2020. The pipeline for 2023 is at a 20-yer high, which suggests vacancy rates will see a further rise.

Office demand also fell back in regions outside of London. Take-up in the M25, M3 and M4 markets dropped back 55% q/q in Q1, and beyond the South East take-up in UK regional markets totalled 1.1m sq.ft. in Q1, which was 22% below the five-year average.

Demand in other property sectors also lost momentum in Q1, with industrial take-up falling to its lowest level since the start of 2021. That said, demand is still elevated relative to its pre-pandemic level. The strong supply response to rocketing demand is helping to ease industrial market conditions. Availability across the UK has more than doubled since Q2 2022.

The office investment data showed early signs of confidence that the worst of the property downturn is behind us. Central London investment volumes staged a strong recovery in Q1, with the majority of deals occurring in March. That said, the recovery in investment was not matched in the Rest of UK, and retail and industrial investment also fell back in Q1.