The London office market is set to experience rental rebasing and vacancy rates are set to reach 10 per cent in the first half of 2021 as the capital responds to changing working patterns and lower office density, states Colliers International.
In Q4 average rents in the City stand at £58 per sq ft, £57 per sq ft in the City Fringe and £75 per sq ft in the West End. Whilst rental volatility has stayed firmly off the agenda this year, next year will see a rebasing notes the firm. Colliers predicts that by Q4 2021 average rents will stand at £53.50 in the City, £69.50 in the West End and £52 in the City Fringe. New and best quality second-hand Grade A product may be able to mitigate some of this downward pressure as supply constraints on the ‘best of the best’ continues to bolster the market.
James Walker, head of City Agency at Colliers International, comments: “A multi-tiered market is set to develop for prime space and the rest, as occupier demand and the lack of availability of Grade A space, will continue to put pressure on stock levels. The space that doesn’t meet high standards or provide any USP for the occupier will drift further out, with rents taking a bigger hit. Creating an offer that is different, flexible and exciting will be crucial to attracting the attention of prospective occupiers, those landlords who can demonstrate they have learnt from the last year in terms of what their customers want will be a step ahead.”
Marketed vacancy will peak in 2021 notes Colliers International, with levels reaching those not seen in a decade but this will still be below the worst excesses of the GFC. While appetite will return in H2 2021, the poorer quality of stock left on the market will inflate levels of vacancy into 2022. On average, London availability has risen by 30 per cent in 2020 while 1.8 million sq ft of second hand tenant space has been put onto the market since April, accounting for 31 per cent of available space across the capital.
Stuart Melrose, Head of Occupier Advisory, London at Colliers International, adds: “Naturally, predicting what is going to happen in the coming year is harder than it has been in the past. Judging on the current sentiment, it would be no surprise if the pandemic causes occupiers to re-evaluate their portfolios and reduce office space. However it may well be that they end up retaining their space but reconfiguring the layout to work with a reduced density. With 60 per cent of tenant released space graded BREEAM excellent, this may well provide some much needed high quality space for those who are actively looking for it.”