Over the next five years, rental values for London offices will be supported by a lack of Grade A space, rather than by a significant increase in tenant demand. This is the prediction of Savills, which noted in its latest Central London Office Review and Outlook that the availability of office premises in the capital is continuing to fall, while development activity remains low. The organisation revealed 11 million sq ft of office space will come on to the market between 2012 and 2015, an average of 2.75 million sq ft per year - significantly below the long-term median of 4.75 m sq ft per annum.
The firm added an increase in the number of new developments in the capital is unlikely in the near future, due to the tight financing conditions the sector is experiencing. However, it pointed out an influx of new space in the West End is anticipated, thanks to plans by the government to reduce its occupancy levels in the capital by half. As the Government Property Unit estimates it currently leases 10 million sq ft of offices in the city, this could result in 5 million sq ft returning to the market over the next ten years. Savills does not expect this to "be a drag on prime rental growth prospects", though, as vacancy rates in the West End are low, currently sitting at four per cent.
Looking at the London office market as a whole, the firm predicted "2012/2013 will be the years when the supply shortages really start to bite in London, at least on Grade A space". The organisation went on to predict continued annual prime rental growth of five per cent until 2016, noting: "The next five years will definitely not be a boom period in the central London office market, but while the recovery will be slower than we have seen before, it will also last longer."
Earlier this month, head of commercial research at Knight Frank James Roberts was upbeat about the prospects for London's office sector. He highlighted the significant increase in technology companies taking space in the capital, commenting: "If office demand from tech firms doubles during an economic slowdown, it will be interesting to see what happens when growth improves." According to Knight Frank's data, the amount of space occupied by this type of organisation hit 1.3 million sq ft in 2011, up from the 640,000 sq ft recorded in 2010.
- Wednesday 22 February 2012