New requirements for London offices provide market boost
5 Nov, 2009,
New requirements for London office space totalling almost 1 million sq ft have been launched in the last month by major corporates providing a further boost to the market which has just enjoyed its best quarter since the collapse of Lehman Brothers over 12 months ago.
In the West End, Centaur Media, Shell and Mace have all launched new requirements for office space of 60,000 sq ft, 220,000 sq ft and 100,000 sq ft respectively. A previously shelved requirement from internet giant Google for 150,000 sq ft has also been reactivated. In the City, 350,000 sq ft of new requirements have been launched including two from AON and Bird & Bird at 200,000 sq ft and 150,000 sq ft respectively.
These new requirements have helped to push demand for central London office space up to 9.35 m sq ft, an increase of 20% on the market's low point in January when demand stood at 7.8 m sq ft.
Guy Taylor, head of West End agency, Cushman & Wakefield, said: “At the beginning of the year there were many more ‘tyre kickers’ in the market; occupiers with theoretical requirements for new office space but who were doing little to progress them. It was a frustrating time in the West End market but this has now changed; occupiers are now reactivating or launching active requirements in the market as they look to realise value in what could be a relatively short window of opportunity in which they hold the negotiating balance of power.”
James Young, head of Cushman & Wakefield’s City office, said: “The City market has been boosted by some chunky lettings and the supply of truly prime grade A space is falling. Prime schemes that are now coming out of the ground will be coming into a market when demand from occupiers will be rising with a limited supply of new space. Although it’s probably a little too early to talk of speculative development starting again just yet, at some point in the next 12 months we are likely to see some developers starting work on site as funding becomes available and confidence returns.”
In the three months to end September, take up of office space across the capital’s main West End, City & Docklands markets increased by 64% on the second quarter to 1.86 million sq ft. The figure is more than double the take up seen in the first quarter of the year when only 716,000 sq ft of space was acquired by companies, the lowest level on record. In the City, take up of 1.35 million sq ft has been boosted by the recent letting of Watermark Place, EC4 to Nomura, and is higher than the quarterly 10 year average of 1.14 million sq ft. Other major lettings in the third quarter include Aberdeen Asset Management taking 71,000 sq ft at Bow Bells House, EC4, 37,000 sq ft to Bain Capital at Devonshire House, W1, and EDF Energy leasing 37,000 sq ft at Cardinal Place, Victoria Street, SW1.
Rents have also reached their lowest point in the cycle. Prices on prime space – the benchmark for the market – have now bottomed out at £42.50 per sq ft in the City and £75 per sq ft in the West End. Cushman & Wakefield now expects prime rents to begin to increase during the latter half of 2010 providing a boost for landlords and developers and meaning tenants have a narrowing window of opportunity to secure space at the lowest prime rents in a decade. With confidence returning, tenants can also expect to see less generous incentive packages from landlords.
Although increased take up and stable rents mark the beginning of the climb out of the London’s office recession, the supply of office space on the market has increased again with 20 million sq ft now available across Central London, a vacancy rate of 8%. However, this amount falls short of the peak levels of availability in the early 1990’s and 2003-5 (the peak in June 2004 was 27.2 million sq ft).