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Economic sentiment is improving and we have seen that shown by a number of indicators this quarter, particularly in the positive GDP result for Q1 and most recently in the latest PMI survey, which suggested that service activity is growing at its fastest pace for 2 years. These are some very positive signs.
These positive signs and improving economic climate does seem to be having a positive impact on the Central London office market in a number of ways. In terms of leasing activity, we have seen the strongest start to the year in the City market since 2007 with a number of large pre let deals coming through in Q2, which is a positive sign for offices in the City. This builds on the strong activity seen in the West End in Q1 in particular, the large Google transaction at Kings Cross. Therefore, across both the major sub markets in London we have seen an improvement in leasing activity which can be connected to a pick-up in economic sentiment.
In the investment market, investment demand was very strong right through 2012 with very strong activity across both markets and we have seen the impact of improving sentiment in terms of the continued strong demand for product as evidence by tightening yields in the City market. Yields have come in from 5.25% to 4.75% indicating strong investment sentiment.
Tight supply will begin to be an issue in both investment and leasing markets; it is unlikely that the development market will be able to keep pace with the recovery in demand. As a result, it is expected that there will be a pick-up in rents and capital values as the year goes on, especially for the best quality product.
This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.