JLL sees encouraging signs
JLL says it may feel as though the offices market in the City of London took a small step backwards at the start of this year, after such a strong final quarter of 2010. But leasing activity has merely returned to average levels, it says.
The firm says in its review of the market for available office space in the City during Q1 2011 that the market has undergone a pause in demand for prime new or refurbished space, rather than entering a new trend. Occupiers are focusing their demand on smaller stock, it adds. “Perhaps the close of the quarter with back-to-back Easter holidays and the Royal Wedding had a part to play,” it notes.
The level of requirements in the City has improved, which JLL says indicates that prospects for the rest of the year are still promising. Vacancies are now at their lowest level in the City for three years at 7.9% and the volume of new schemes under construction and due for completion in the next two years remains very limited.
Meanwhile, in the West End there was a solid start to the year, with offices take-up described as “relatively healthy”. JLL says in its research into this market that the drop in the vacancy rate below 4% for the first time since early 2008 is another encouraging sign for rental growth in this area of London. This reinforces the belief that the recovery in the West End office market continues to be supply-led and, with just 336,000 sq m (3.6m sq ft) set to be delivered from the development pipeline over the next four years, this situation is unlikely to change in the short term,” it adds.
JLL notes that in the wake of the recent strong growth in rents for both prime and secondary properties in the West End, occupiers may be tempted to move to cheaper areas of the capital such as Farringdon, Clerkenwell and South Bank. “Consequently, these areas could also see a bounce back in rents sooner than expected,” it notes.
