Central London offices activity cools–Capita Symonds
More today on Central London office space, this time from Capita Symonds, which says its second-quarter survey of the market shows lower activity levels, reflecting the slower world economy. The second quarter of 2011 again saw take-up of Central London offices below the historic quarterly average of 3m sq ft, for the second consecutive quarter, the firm notes.
Take-up of available office space in the City was particularly weak at 605,000 sq ft, down 22% from the previous quarter and 36% lower year-on-year. In the West End the market was somewhat stronger but take-up was still 9% below the Q1 level at 722,000 sq ft and 35% lower year-on-year.
Alan Dornford, director – markets at Capita Symonds, said that it was too early for this to be described as a trend, but that it was clear that businesses were staying put and that the office market was “biding its time”. The prevailing caution in boardrooms across all sectors meant that businesses were reluctant to consider moving, investing, or recruiting additional staff.
Capita Symonds notes that occupiers have spent the past two years improving their space and making the most of incentives. But as supply has reduced and incentives have become smaller, businesses now have fewer options when considering a move “and the financial case isn’t necessarily as compelling as it once was”.
“The market is therefore now much more dependent on growth in the economy – new businesses coming into London and existing businesses adding more staff,” the firm points out.
Despite the uncertain short-term outlook for growth, the office market in Central London is still viewed as a safe haven for investors, Capita Symonds says, noting that recent Morgan McKinley data shows “a reasonably positive employment picture” in the City with more than 5,000 job vacancies compared with just 2,000 at the start of 2009. “This is further supported by the very limited amount of Grade A space in the pipeline – just 1.3m sq ft is scheduled for completion in the City in 2011 and 380,000 sq ft in the West End”, notes Andrew Mercer, director – investment at Capita Symonds.
Looking further ahead, there is just 640,000 sq ft of newly developed space due for completion in 2012 in the core Central London markets of City, Midtown and the West End, the firm points out. No office space is under construction at all in some central areas, such as the City Fringe and Docklands. “Outside this core the only substantial completion scheduled for 2012 is the Shard where 586,000 sq ft is available,” Mr. Mercer continued.
Once new supply does come onto the market from 2014, rents are forecast to cool somewhat, but in the meantime the scarcity of Grade A space is expected to see a continued “faltering, but upward” trend. (See CBRE’s latest Monthly Index for more on Central London office rental values.) Talk of a £100 per sq ft rent in the West End now looks a little premature, says Alan Dornford, with comparatively few rents achieved so far above £70 per sq ft. City rents are currently around £55 per sq ft, which is about 4% higher than at the start of the year.
