Quarterly Review: Q4, 2022

Quarterly Review: Q4, 2022

Recessions in advanced economies were avoided last year and so it looks like they will commence a little later than initially envisaged. But the full force of monetary tightening is yet to be felt and contractions are still likely in the US, UK and euro-zone.

Central London occupier activity is starting to cool as the economy slows, with office take-up in Q4 10% below its 10-year average. That drop in demand is leading to a rise in availability, particularly of second-hand space. And a lot of new space is set to hit the market in 2023, which will push up vacancy further.

Bucking the trend, industrial demand ticked-up in Q4, with the South East seeing the most deals. But a drop in take-up over the second half of last year helped South East availability to improve. A strong supply response is also easing market tightness, with a doubling of under construction and completed buildings over the year.

Slowing office demand was also evident outside of London. Take-up in the South East fell 27% q/q in Q4 and was 28% below the five-year average. UK regional office availability was stable in Q4, but as with London there is a sizable pipeline with 3.4m sq.ft. due to be completed in 2023, of which 60% is speculative.

Total investment volumes had a very weak end to the year, as rising interest rates, a slowing economy and concerns around capital values all hit investor sentiment. Investment volumes in Q4 were down around 60% y/y. Within that total London office investment has seen a particular large decline, with just a handful of small deals totalling £300m and down 93% on a year earlier.