Western Corridor office occupiers to remain cautious – Jones Lang LaSalle
The market for available office space to rent in the Western Corridor region (which includes West London and the Thames Valley) has made a positive start to 2011, with more than 393,000 sq ft of office space let in the first quarter, says Jones Lang LaSalle. This was broadly in line with the previous quarter and up 48% year-on-year. However, take-up in Q1 2011 was below the 10-year average and JLL expects occupiers to remain cautious, given the mixed economic outlook, with total take-up for 2011 forecast to be similar to last year’s level, at just over 2m sq ft.
Significant office deals in the region included Adobe Systems taking 49,500 sq ft at Market House, Maidenhead and the acquisition by BP of 36,400 sq ft at 5 The Square, Stockley Park, the firm notes. Activity was spread more evenly during the quarter between town centres (52%) and out-of-town locations (48%) during Q1 2011, in contrast to the previous quarter’s take-up, JLL notes.
Activity was again driven largely by lease events rather than by any single growth sector. The manufacturing and services sectors again dominated, accounting for 77% of take-up in the first quarter. JLL says its research suggests that further consolidation – particularly within the Pharma and ITT sectors, will continue to drive some leasing activity this year.
James Finnis, head of the National Offices team at Jones Lang LaSalle, notes that Grade A space remained in favour, accounting for 245,000 sq ft of space taken up during the quarter – nearly two thirds of the total, compared with an average proportion of nearer 50%. The overall supply of offices increased slightly to 12.5m sq ft, driven by a 4% rise in the level of Grade B supply. The vacancy rate stood at 14.6% overall but Grade A vacancy rates were just 6% in the Western Corridor and only 3.1% in the West London submarket, the firm notes.
Jones Lang LaSalle notes that speculative construction of office space in the region currently only totals 130,000 sq ft, and that none of this is due to complete this year. James Finnis adds: “Developers and investors are becoming aware of this historically low level of stock replacement and there are signs of a development market re-emerging with sites and refurbishment opportunities beginning to trade.”
He notes that the continued lack of funding for speculative schemes means that Grade A supply will reduce further, with more pre-lets expected in future, while the amount of Grade B space on offer is forecast to rise as a result of public-sector cutbacks.
Rents across the region rose 0.8% during the quarter, driven by upward pressure in Chiswick and Windsor, while in the other key centres rents were stable compared with the previous quarter. Incentives were also stable, at up to 30 months rent free on a 10-year lease in the Thames Valley and 24 months in West London. Jones Lang LaSalle expects annual growth of 3.6%, taking the average prime rent for the region to around £28.42 by the end of this year.
