West End pressures to intensify – Cluttons
The vacancy rate for office space in London’s West End fell to 5.4% in the latest quarter from 5.9% in the previous three months, says Cluttons – the lowest level since January 2009. In some parts of the West End, such as Soho, the shortage of stock is even more acute, with a vacancy rate of less than 3%, Cluttons notes, although the market is strongly tiered with Grade A options very limited and Grade B space more readily available. The firm says the pressure will intensify over the next two years as a cohort of occupiers that took leases out in 2006/07 faces breaks or expiries.
Occupiers remain “ultra-cautious”, with the market driven mostly by lease events; Cluttons says the lack of available development finance has contributed to the lack of activity but notes that the London economy has remained more robust than that for the rest of the UK, “as a result of the greater than perceived diversified nature of the economy”. The financial sector has increased its presence in the West End over the past decade but the office market in the area benefits from a broader business make-up.
Speculative development did increase in the last quarter – space under construction went up 20% – but it is still below the 10-year average and more than 40% of the increase is in the Victoria area, with less than 15% of the pipeline in the highly sought-after Mayfair and St James’s markets. “We therefore expect pre-let pressures to stimulate further starts over the coming quarters,” Cluttons says.
Rents in the West End are forecast to rise by an average of more than 8% over the next four years, highlighting the need to fix costs early, the firm points out.
