Prime City office rents record first rise in three years
8 Jan, 2010, London
A flurry of major office lettings in the last three months have boosted London’s office market according to new figures from Cushman & Wakefield. 41% of the year’s total take-up of office space of 6.4 million sq ft took place in the last quarter as corporates have moved to secure deals believing rents to have bottomed out. The take-up of 2.6 million sq ft is the highest quarterly figure since the collapse of Lehman Brothers.
Rents stabilised at their lowest point in the cycle in Q4 with prices on prime space – the benchmark for the market – standing at £75.00 per sq ft in the West End. In the City market the first rental growth in 3 years has been recorded with prime rents rising 3.5% to £44.00 per sq ft up from £42.50 per sq ft. This first sign of rental growth going into 2010 provides a boost for landlords and developers and means tenants have a narrowing window of opportunity to secure space at some of the lowest prime rents in a decade. With confidence returning, tenants can also expect to see less generous incentive packages from landlords.
Key deals which happened at year end included law firms Clyde & Co taking 145,000 sq ft at St Botolphs, EC3, and Pinsent Masons taking 189,000 sq ft at Crown Place, EC2. A number of other large transactions failed to make the year end cut-off meaning there should be a reasonable start to 2010.
Central London available space currently stands at 20 million sq ft which equates to an overall vacancy rate of 8.5%. Market dynamics, however, are fundamentally more solid today than in the last recession, when the peak vacancy rate was approaching 17%; in part due to a much smaller speculative construction pipeline today but also because occupiers have been less inclined to release surplus space back onto the market compared to the early 1990s.
Speculative development activity has fallen markedly and as at year end just 5.0 million sq ft is under construction. This is down by 42% compared with 12 months ago and 1.6 million sq ft over the quarter. The majority of this space is due on stream in the first six months of 2010 after which supply will start to diminish placing rents under pressure.
James Young, head of C&W’s City office, said: "Undoubtedly 2009 was a challenging year for the office markets in London. We turned the corner in the third quarter, however, as take-up of space started to increase and in the 4th quarter we have seen a number of major transactions that have boosted the annual take-up to a respectable level. With rents on prime City space now showing growth, 2010 will be a time for occupiers to secure terms for their future business before the onset of a shortage of new space drives terms further in landlords' favour.”
Guy Taylor, head of West End office agency, Cushman & Wakefield: “2010 will see a supply led recovery although demand for West End office space is also up by 50% since January. Professional and TMT corporates are likely to take-up the most and for the best space, either planned or now coming out of the ground, we are likely to see a number of pre-let agreements with landlords. Occupiers will want to secure best price before rents are likely to increase toward the back end of the year.”