City and West End offices supply to fall by year-end – Knight Frank
Knight Frank expects the supply of office space in the City of London and offices in the West End to have fallen by the end of 2012 thanks to an increase in demand.
The firm has released its Q1 2012 data for Central London offices, showing that the difficult economic conditions in the latter part of last year affected activity levels at the start of this year, but feels that evidence of an improving economy during Q1 will buoy demand for office space in London as the year continues.
Knight Frank says take-up of office space in the West End during Q1 2012 was 1.0m sq ft, compared with 1.3m sq ft for the final quarter of 2011. Availability was 5.2m sq ft, compared with 4.9m sq ft in Q4 2011, but the firm expects this figure to have fallen to 4.7m sq ft by the final quarter of this year. Prime rents for West End office space were steady q/q at £92.50 per sq ft during Q1 2012, and are expected to increase to £97.50 per sq ft by the year-end. The firm says demand for office space in the West End has remained strong from occupiers in the technology sector and adds that while supply increased during Q1 it was still very low by historical standards, with the vacancy rate below 6% compared with a long-run average of 8%. A restricted development pipeline is expected to keep supply levels in check, Knight Frank adds – there is currently 1.6m sq ft of office space under construction in the West End, much of which is not due to complete until 2013.
In the City, Knight Frank says take-up of offices was 1.0m sq ft in Q1 2012 compared with 1.5m sq ft during the previous quarter. Availability rose to 11.4m sq ft, from 10.4m sq ft in the final quarter of 2011, but the firm expects this figure to fall sharply by the year-end, to 9.9m sq ft. It expects prime rents to remain stable at £55.00 per sq ft. William Beardmore-Gray, head of City leasing at Knight Frank, notes that demand for City office space typically lags behind events in the global financial markets by about six months, so the volatile financial markets seen in late 2011 led to a weakening of demand in Q1 2012 – “though not to the extent that occurred in Q1 2009, when take-up dropped to just 730,000 sq ft,” he adds.
“However, I believe these figures tell us where we have been, not where we are going. The economic news has improved in recent months, and a number of insurance and law firms have large office searches in the City, with deals expected to go under offer in the coming months. Consequently, we expect demand to recover as the year progresses, steadily pushing down supply,” he concludes.
