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Best in class space and flexible terms will be dominant theme for the West End office market

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It is no secret that London’s vacancy rates have risen throughout the pandemic, and levels in the West End are now at 6.9 per cent compared to 4 per cent in Q1 2020.


Despite this, the contrast with previous downturns is significant. There is now far more focus and demand on good quality office stock and the best is being separated from the rest at an accelerated rate. 

Current vacancy represents the highest level since 2011, however, at that point new/refurbished accommodation represented 40 per cent (2.3 million sq ft) of available space. As of April 2021, with overall availability on a par (5.8 million sq ft), the same type of space accounts for just two per cent (132,000 sq ft) of marketed product.

We expect West End marketed vacancy to peak in 2021 at levels not seen for a decade (at circa 8 per cent) but this is still below the worst excesses of the Global Financial Crisis (10 per cent). Availability will fall steadily in the second half of this year, but may remain stubbornly above trend due to a proliferation of poorer quality non retro-fitted space. This space is going to be unattractive to modern occupiers in a post-COVID landscape and those landlords who are reluctant or unable to refit secondary stock will no doubt struggle to let it.

Tenant space accounts for 30 per cent of availability in the West End, keeping pace with wider rises in vacancy. While levels surged in January 2021 (+350,000 sq ft), February saw releases slow and in March just 30,000 sq ft came to market. This has meant that vacancy levels in the district have remained broadly flat in 2021, as new releases were balanced by absorption. Regardless of current optimism, the prospective ending of explicit government support in the autumn will put renewed strain on occupiers. It is probable that there will be a ‘second-wave’ of tenant releases from September onwards.

Take up

The occupier market has received a welcome boost in 2021 with activity in terms of live requirements - the busiest it has been since the start of the pandemic. According to our figures there are close to 100 firms looking to take space in the West End. In the first quarter, take-up surpassed 550,000 sq ft, the highest level since the start of the pandemic and a 75 per cent increase quarter-on-quarter.

Occupiers continue to review stay-or-go strategies with a number favouring lease renewals or extensions at their existing premises. Regardless, many will face challenges in attempting to ‘make-do’ with potentially tired or out-of-date facilities. That said, the West End will continue to benefit from the gradual easing of lockdown restrictions with the reopening of retail and food & beverage outlets a major boost to the wider commercial environment and incentivising workers to return to offices. 

Outlook

While office take-up over the next 12 months will be at least 25 per cent below trend, there is every reason to expect a surge in demand as 2021 progresses.
Once there is greater certainty of the recovery following the pandemic, occupiers will be able to firm up their relocation decisions and we will see an unlocking of the market. It will be the new and refurbished space that will attract the lion’s share of the appetite, however discerning occupiers may well face a shortage of stock, as the development pipeline remains constrained. In the face of this, it is crucial that landlords look to their existing stock and create a product that is different and unique in order to capture any demand and ensure they aren’t left with second hand stock on the shelf.

 

About the Author

Guy Grantham, Director of Research & Forecasting, has been a property research professional for 23 years and gained extensive knowledge of the UK and Global property markets. He now specialises in the London Office market using his extensive knowledge and experience to provide market leading insight into current occupier, investment and development trends. To get in touch, contact Guy.Grantham@colliers.com.

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Guy Grantham

Director of Research and Forecasting

Research and Forecasting

London - West End

Guy has been a property research professional for 23 years and gained extensive knowledge of the UK and Global property markets. He has worked closely with a wide variety of major developers, landlords and occupiers in a consultancy capacity. Instrumental in supporting Hines' purchase of Brindleyplace for £200m, on which Colliers advised. He is now specialising in the London Office market using his extensive knowledge and experience to provide market leading insight into current occupier, investment and development trends.

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