Improvement in central London office property market predicted for end of 2012
|Wednesday, 18 April 2012|
Evidence of an improving economy in the first quarter of 2012 will buoy demand for office space in London as the year continues, according to Knight Frank Research.
Central London saw a slowdown in activity due to difficult economic conditions in the last months of 2011 but the consultancy is now forecasting a fall in office supply by the end of the year in the City and the West End office property sectors.
Prime rents in the West End in the fourth quarter of 2011 were £92.50 per square foot and stayed the same in the first three months of 2012 but the Knight Frank forecast is that they will reach £97.50 per square foot by the end of the year.
‘A small drop in take up was inevitable given the difficult economic backdrop, but we are seeing continued strong demand emerging from the technology sector, with household names like Wonga, Money Supermarket and TomTom all active,’ said Tim Robinson, proprietary partner, head of West End Leasing at Knight Frank.
‘While supply increased, it is still very low by historic standards with the vacancy rate at less than 6%, compared to a long run average of 8%. The constrained development pipeline will keep supply levels in check going forward. There is currently 1.6 million square feet under construction, much of which will not complete until 2013,’ he added.
In the City prime rents are expected to stall. They were £55 per square feet in the fourth quarter of 2011 and the same in the first quarter of 2012 and forecast to remain at this level for the rest of the year.
‘Typically demand for City offices time lags events in the global financial markets by around six months. So as a consequence of the volatility we saw in the financial markets six months ago, we have seen a weakening of demand in the first quarter of 2012 although not to the extent that occurred in the first quarter of 2009 when take up dropped to just 730,000 square feet,’ said William Beardmore-Gray, proprietary partner, head of City leasing at Knight Frank.
‘However, I believe these figures tell us where we have been not where we are going. The economic news has improved in recent months, and a number of insurance and law firms have large office searches in the City, with deals expected to go under offer in the coming months. Consequently, we expect demand to recover as the year progresses, steadily pushing down supply,’ he added.
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