Asia-Pacific investment to add to demand for London office space – Knight Frank
Knight Frank, which today held its annual Central London Office Market Breakfast, cites a “severe imbalance” between supply and demand for high-quality office space, and growth in market sectors such as technology, media, telecoms and financial services, together with lease breaks and expiries, as factors set to propel rents higher over the next two years. It also expects investment from Asia-Pacific companies will add to the rising demand for office space.
The firm forecasts that City offices rents will reach £60 per sq ft in 2011, from £55 per sq ft in 2009, and rise to £67.50 by 2012. It notes that development activity remains extremely low, with just 0.85m sq ft expected to be put on the market this year, a far cry from the average take-up of 3.2m sq ft of new and refurbished space. Supply has already tightened, falling 15% in 2010 to 10.4m sq ft, and is expected to fall another 5% in 2011 to reduce availability to 8.8m sq ft.
In the West End, the firm forecasts that prime rents for available office space will reach £100 per sq ft in 2011, up from £85 per sq ft in 2010, with demand from specialist financial companies such as hedge funds pushing demand levels further beyond supply. Knight Frank expects availability to fall 7% in the West End this year to 6.0m sq ft. There is just 209,000 sq ft under construction in the area, and the firm thinks that tenants with requirements for 2013 are likely to commit to pre-lets in buildings currently being built that are due for delivery that year. Average take-up for the area is 1.7m sq ft of office space per year, it notes.
“The imbalance between demand and supply will change the face of many districts as competition for space in core markets causes displacement of tenants,” the firm says. It adds that the strongest performance in the investment market will be from refurbishment opportunities, or better secondary stock, with the main factor influencing value being the timing of letting and exit.
