Shortage of property in London West End, analysts suggest

The limited availability of good quality space in London’s West End is becoming critical according to Cushman & Wakefield, the global property consultant.

With demand expected to pick up, largely due to more than 11 million square feet of lease events taking place across the West End in 2011/13, upward pressure on rents will get stronger and pre-lets will become more common, it says in its latest report.

With no significant development completions in the West End this quarter, total supply fell by more than 10% over the first quarter of 2011. Central London supply levels stood at 18.1million square feet at the end of March 2011, a fall of 4% year on year.

West End take up activity in the first quarter was just under 600,000 square feet. Building on trends seen in 2010, TMT was the most active sector accounting for 45% and Soho and Covent Garden was the most active submarket, in the West End. Total take up across central London was 1.32 million square feet.

It also reveals that rents around £100 per square foot are becoming commonplace in Mayfair and St James’s as a number of niche financial players continue to take space, and there is no sign of rents slowing down in the short term. City rents have remained stable at £55 per square feet.

‘The market in the West End is being driven by a lack of choice of good quality space due to the lack of development since the beginning of the recession. Take up is being driven by lease events more than expansion and the TMT and financial sectors are pushing the market forward,’ said Guy Taylor, head of West End Offices, Cushman & Wakefield.

Meanwhile, the latest property snapshot from Colliers International shows that Central London take-up fell in the first three months of 2011, mainly in the City and Docklands which together were down by 47%.

In contrast, the West End and Southbank markets saw the highest take up for over three years. West End headline rents are up to £90 per square foot with rumours of a few substantial lettings imminent at £100 plus per square foot. While City headline rents remain at £57.50 per square foot.

In the regions increased M&A activity has not yet generated new leasing requirements as occupiers continue to be reluctant to upgrade/upsize. City centres remain the focus, although activity west of London is reported to have increased in the last few weeks.

‘London’s Grade A leasing market, especially the West End, is running out of space, the City less so. Regional occupiers remain reluctant to commit to new leases,’ the report said.

In the residential market prices show signs of stability, Colliers says, and despite uncertainty with respect to the planning environment and no clear improvement in residential mortgage availability, house builders continue to chase development sites with or without planning permission to secure market position when the market turns.