Fringe West End office markets see growing demand – Cluttons
While there are signs of an upturn in the corporate demand for office space in the City of London, after a subdued first quarter, Cluttons says the TMT sector has provided a “welcome supplement” to the traditional banking and finance occupiers in the Square Mile. The firm notes that there was also a slowdown in activity in the West End offices market during Q1 2012, but the vacancy rate there remained well below that of the City, at 4.6% compared with close to 7%.
The shortage of office space in the West End has been driven more by supply constraints than by buoyant occupier activity, Cluttons notes, with corporates remaining “extremely wary” and lease events continuing to dominate demand rather than requirements for new space. The firm says that while the demand from the TMT sector in the West remains important, the demand potential generated by this sector should not be overstated, and feels that its recent prominence has been largely driven by “the very thin demand from other sectors of the traditional West End market”.
For example, it says that mid-sized occupiers in the hedge fund sector have generally put requirements on hold. However, while demand in the prime markets of Mayfair and St James’s has been muted, submarkets outside the core, in what Cluttons terms the ‘cool crescent’ of Soho, Marylebone, Soho and Covent Garden, are seeing growing demand from a broad range of occupiers, the firm notes. While these areas are perceived to offer value in the current economic climate, Cluttons feels that they each hold strong as locations in their own right. It notes that lettings in these areas have driven down vacancy levels, with the level of vacancies for offices in Soho/Fitzrovia at just 1.5% at the end of Q1 2012, for example – the lowest for six years.
Even a small increase in activity in 2012 and 2013 could have a marked effect on rental growth, the firm says. Available supply is being quickly absorbed in edge-of-core markets such as the South Bank and this has pushed up rental levels in the six months to end-Q1 by an average 6% across the ‘cool crescent’ – leading to more uniform pricing across the submarkets that lie on the fringes of the West End.
