Quarterly Review: Q1, 2024
There has been some improvement in global economic activity since the start of the year. But even so, global growth excluding China is likely to be slightly below trend in 2024. That holds true for the UK, which emerged from recession at the start of the year but where the recovery is set to be gradual.
After a strong end to 2023, Central London office demand dropped back in Q1 2024. Take-up declined to 1.9m sq. ft., the lowest level since Q2 2021. The drop in tenant demand was evident across both the West End and City, while the Docklands saw a small rise. But with a significant amount of space under offer take-up looks set to rebound in Q2.
Soft office demand was also evident outside of the capital. Take-up in the Big Nine regional cities in Q4 2023 was up only marginally on Q3 to a total of 1.92m sq. ft. That was only 2% above the 5-year average, which includes the disruption from Covid-19. Bucking the trend was Liverpool, which saw a rise in take-up to 143,000 sq. ft, up 43% on its 5-year average.
Demand for logistics space fell back in Q1, with take-up of 4.5m sq. ft down from 8.8m sq. ft. in Q4 2023. But a contraction in the construction pipeline prevented a rise in availability, with the vacancy rate stable at around 5%. Meanwhile, Central London retail unit vacancy rates improved or were stable across all subsectors bar the City in Q4 and lettings also increased in the quarter.
High financing costs have continued to weigh on property investment. Investment in Central London offices fell for the third quarter in a row in Q1 to £1.0bn, the lowest amount since the end of 2022. And office investment outside of London dropped to £520m, the lowest since the lockdowns of Q2 2020. But investment in shops held up, supported by two large deals in London.