The race for space is well and truly on in the capital according to new research from Colliers International.
While construction activity is on the rise in London, speculative development has fallen by 12% year on year, reducing office space by 800,000 sq. ft. to a four year low.
“Occupiers are increasingly realising that the only way to secure appropriate quality product is to sign a pre-leasing agreement and to do so earlier in the cycle than ever before.” Said Paul Smith, co-head of central London agency at Colliers International. “The amount of space that was pre-let rose by a massive 250% in 2015 taking much of the office space currently under construction off the market.”
This year saw average pre-let deal sizes in London rise to 100,000 sq. ft. from 44,000 sq. ft. in 2014. The wait to completion has also shifted. Pre-lets to West End occupiers in 2015 were typically signed 16 months prior to completion of the respective scheme. This is up from just five months in 2013. In the City, pre-letting deals are now typically signed 20 months before completion, nearly twice as early on 2013 where the average time to completion was 11 months.
Experts at Colliers International predict that 2016 will see further substantial pre-commitments occurring following in the wake of occupiers such as Facebook at Rathbone Square, Carlyle at St James’s Market and Google at King’s Cross. However the average pre-letting deal size will stabilise in the face of reducing supply.
“The low vacancy environment in London will persist throughout 2016, but that is not to say that occupiers will take just any space. Distinctive and edgy office space is set to stay in vogue bolstered by on-going healthy demand in the media and tech sector.” Said Smith.
“My advice to developers and landlords wishing to attract occupiers in 2016 is that despite space shortages, ‘vanilla’ or compromised floor space is still just as likely to deter occupiers, even in core locations. Equally, ‘quirky’ will not compensate for underspecified.” Added Smith.
Occupiers will continue to explore diverse geographies in 2016 in order to satisfy requirements. Locations such as Aldgate and Whitechapel, where take-up rose for the third successive year (up by 75% in 2015 alone), will begin to see vacancy come into line with core locations at sub-five percent. Meanwhile, emerging locations such as Wembley, Croydon and Stratford are beginning to appear more frequently on occupiers’ radars.
“With competition for space being exacerbated across all grades in 2016, we expect continued positive uplift for average, as well as headline rents. I predict that average annual rental growth for London offices will tip over 11% in 2016 with non-core locations leading the way. Farringdon, Clerkenwell, Shoreditch and Aldgate will continue to be shining stars in the market which will see them experience double digit headline rental growth in 2016. Meanwhile the West End will likely end the year with average headline rents at or very close to £100 per square foot.” Said Smith.