Detailed report from Jones Lang LaSalle:

“Leasing volumes in the six months to March fell 28% compared with the six months to September, despite a reasonable first quarter. We expect take-up to be subdued over 2008. Tenants control almost 2.8 million sq ft of supply across London. While weexpect this quantum to increase we do not expect it to reach the 6.5 million sq ft seen in 2003. Investment volumes increased by 40% quarter on quarter to £2.4 billion. However, they expect volumes to remain low over 2008 as debt remains difficult to source.

Overview (full report can be downloaded below):

The Economy

• GDP expectations fall to 1.6% for 2008
• Base Rate reduced to 5.00%
• LIBOR disconnect worsens

Occupier Take-Up and Net Absorption

• 2.5 million sq ft let across Central London in a reasonable first quarter
• However, the last six months saw a reduction in activity of 28%
  Net absorption reversed in the City

Occupier Demand

• Occupier demand fell by 1% across London in Q1 and by 3% in the last six months
• There was a notable shift from active to potential demand in the West End
• We expect demand to trend downward, but not collapse

Existing Supply and the Development Pipeline

• Overall vacancy rates fell to 3.9% with 2.6% for Grade A
• This will increase over 2008 and 2009 with 8.3 million sq ft of speculative space due to complete
• Tenant controlled space is expected to increase, but below levels seen in 2003

Rents and Rental Expectations

• Net effective rents reduced as incentive packages became more generous
• More significant rental softening expected for larger units as two tier market emerges
• Prime headline rents in the 10,000 sq ft market also fell in the City

Investment Volumes and Yield Movements

• £2.4 billion traded a 40% increase on the final quarter of 2007
• Prime yields on smaller lots unchanged but there was more outward pressure on yields in the larger market

The Central London Market Q1 2008 PDF