London commercial property out performs rest of UK, reports show

Published 13th Jul 2011

Competition for the very best office space will help take up remain high in the most sought after commercial property locations in London, according to new research from Colliers International.

It has found that net stock absorption of office space across Central London reached 1.8 million square feet in the first half of 2011, resulting in a rise in occupancy across all core locations.

The West End saw six month occupancy rise at its fastest rate since the pre-credit crunch in the second half of 2005 and now stands at 94%. Grade A absorption remains strong but the first half of 2011 shows levels moderating, primarily due to below average take up in the City.

Central London availability fell to a 30 month low driven by a fall in Central London Grade A availability of 17% in the past 12 months, the report also shows.

In the West End market, Grade A availability has seen an even sharper decline over the past year, down by 55%. However, take up of top quality product has begun to peak due to the lack of new space being delivered onto the market. The Central London office market saw quarterly take up rise by just 7%, as overall availability fell by 10%.

The lack of availability of Grade A stock is starting to have a significant impact upon headline rents, specifically across the West End market. Some locations have already are seen double digit growth in 2011 to date.

While competition for Grade A space continues to drive up headline figures, the second-hand market is also beginning to see significant falls in vacancy as cost conscious occupiers look for alternative options in the core locations. Second hand availability is down by 19% since the start of 2011.

‘Competition for Grade A space will remain the key driver of rental uplift during the remainder of 2011. Despite that, overall 2011 take up is likely to be below average in both the City and West End markets,’ said Mike MacKeith, head of central London offices at Colliers International.

‘Absorption appears to have peaked in the City and is close to peaking in the West End. Nevertheless, we expect to see increased absorption of good quality second hand stock as Grade A product becomes scarcer. We expect increased pre letting activity not just in the City but in the West End also, as the lack of new supply limits the Grade A offering to new entrants and expanding occupiers seeking high spec product in core locations,’ he explained.

‘Double digit rental growth is likely to spread to the majority of West End submarkets while the City market remains dominated by headline deals at trophy schemes,’ he added.

Meanwhile, London office space continues to outperform the rest of the UK, according to the provisional results of the UK Commercial Market Survey for the second quarter of 2011 from the Royal Institution of Chartered Surveyors.

The commercial property market in London continues to show a more positive picture than the rest of the UK, it says, while the office sector outperforms the industrial and retail sectors in both occupier and investment markets.

Critically, the outlook for capital values and rents is still negative in both the industrial and retail sectors and in all regions outside of the capital. New development starts of offices begin to rise but continue to fall for retail and industrial space while investment demand rises at a faster pace nationally, especially for offices.

Surveyors see the greatest volume of available investment funds for London offices while at a national level, tenant demand rises for the third consecutive quarter but improvement remains modest.
There is a stark regional divide with sentiment in London generally more upbeat that elsewhere around the country, according to Simon Rubinsohn, RICS chief economist.

Source: ' Property Wire '

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