A 20-year record low for speculative space is leaving London with a seriously-eroded development pipeline of just 1 million sq ft – enough to satisfy just 2.5 months of demand at current levels – according to the latest research by Colliers International.
In its London Offices Q1 2019 Snapshot, the firm announced that London was in danger of running out of space; speculative development levels are at their lowest in almost two decades and overall availability remains 15 per cent below the 10-year average.
Paul Smith, Co-Head of London Offices at Colliers International, said: “Supply levels of new development space are almost at a standstill and, while 2020 will see new product delivered, the intervening shortage will continue to provide occupier motivation for securing pre-lets.”
With the report predicting that there will be a supply/demand imbalance in H2 2019, it is expected there will be downward pressure put on incentive packages, laying the groundwork for more rental rises to come.
Meanwhile, take-up dipped to an 18-month low in Q1 2019. That said, Q1 2019 transaction levels were only 10 per cent below the ten-year average while the West End saw no perceptible deceleration at all.
Much of the slowdown outside the West End can be attributed to ‘record-breaking’ demand in Q4 2018, which has inevitably produced a modest lag in deal execution at the start of 2019. Despite sub trend take-up, total vacancy only saw a marginal uplift from 5.1 per cent to 5.2 per cent.
Guy Grantham, Director, Research & Forecasting at Colliers International, explains that, regardless of this, pent up demand remains keen: “There is currently over 4 million sq ft of space under offer across London as a whole and over 36 individual deals were negotiated for units in excess of 20,000 sq ft in Q1 2019.
“Over 1 million sq ft of that space is under offer on a pre-let basis, while an additional 300,000 sq ft of new and refurbished space is also in solicitors’ hands.”
In Q1 2019, investment activity reached £3.1 billion, with the City surpassing £2 billion and West End over £1 billion. Both markets were marginally up on Q1 2018, although the West End was 33 per cent down on the ten-year Q1 average.
John Olney, Co-Head of London Offices Capital Market, concludes: “With Brexit uncertainty set to continue until at least Q4 2019, transaction volumes have reduced. However with very limited opportunities currently available on the market, pricing remains stable.”