Central London offices buck the trend
GVA Grimley’s UK economic and property market review for the third quarter of 2010 highlights the fragility of occupier demand and the sharp difference between the market for Central London office space and other commercial property elsewhere in the UK.
The group notes that there was a sharp drop in occupier demand for office space during Q2, reversing the rises seen over the previous three quarters, and a continuous increase in available office space as reported by RICS. Central London offices have been bucking the trend, with the vacancy rate falling to 8.4% in Q1 and remaining at this level in Q2, while it is slowly increasing elsewhere in the UK. Average rents for Central London offices rose 1.4% in Q2, the second consecutive quarterly increase, while rental values saw modest falls across most of the rest of the market.
GVA Grimley expects a gradual recovery in commercial property occupier markets outside Central London offices, but cautions that the outlook for occupier demand in general over the next few years looks subdued. The group expects All Property average rental growth of 1% next year, but forecasts sharp variations within this, with Central London offices forecast to grow 5% and regional office space to rise 1%-2%, “while in the retail and industrial markets a further modest fall is likely”. After 2011 GVA Grimley thinks rental growth should begin to pick up speed as the lack of new development triggers supply shortages and occupier demand starts to recover as well.
