Challenging year ahead for offices – Savills
Savills says this year will remain challenging for the offices market in some UK cities, but expects rents to remain underpinned by the modest development pipeline. Take-up in most UK cities was muted in 2010, apart from London and Manchester, the firm notes. “Most regions are being driven by the churn of smaller enquiries. The principal drivers of demand in normal market conditions, the Professional and Financial Services, are much less active. Indeed, many investors are questioning the likely strength of the recovery in the face of public sector austerity,” it notes.
The reduction in new developments has already led to reduced office supply and shortages of new space are predicted in some cities from 2011 onwards. “With regional office development pipelines at historic low levels, and little likelihood of a pick-up in development activity in the next 2-3 years, it will not take much of rise in tenant demand to drive a recovery in rents,” Savills says in its Winter 2010 report on the UK offices market. The firm expects to see sustained office rental growth in regional markets within 12-18 months, and says office rental growth at a national level should move into positive territory over the next 12 months. “The most successful regional office markets in 2011 remain the strong private-sector towns and cities where public-sector cuts are less relevant,” the firm points out.
In the City of London, where offices take-up soared in 2010, Savills expects to see top rents rise by 5.3% in 2011, with total growth between 2009 and 2011 forecast to reach 20%. In the West End, the firm forecasts a 14% increase in rents for the 2009-2011 period. Other attractive opportunities lie in Manchester, Cambridge and the M25 region, Savills says, driven by a shortage of Grade A stock and improving occupier demand.
