Property News Colliers International UK Plc trading Update

Central London Offices

New research from Colliers International has shown that net stock absorption of office space across Central London reached 1.8 million sq ft in H1 2011, resulting in a rise in occupancy across all core locations.

The West End saw six month occupancy rise at its fastest rate since pre-credit crunch in H2 2005 and now stands at 94%. Grade A absorption remains strong but H1 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.

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.

Mike MacKeith, Head of Central London Offices at Colliers International commented: “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.

“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.

“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.”