Following a weak third quarter, confidence appears to be returning to the City of London office market and is expected to continue to improve throughout 2002 says FPDSavills.
According to research from FPDSavills, take-up in the City over the final three months of the year reached 131,918 sq m (1.42 million sq ft), a 46% increase on the previous quarter. The total figure for the year was 568,548 sq m (6.12 million sq ft). Although this figure reflects an 11% reduction on the previous year this should not alarm the industry as 2000 was the strongest year the City office market had witnessed since 1987.
While the recovery in take-up is a positive sign for the City office sector, concerns do exist about the continuing increase in the vacancy rate. This has risen from 3.9% at the end of 2000 to 8.3% at the end of 2001 representing a pool of available space of 622,430 sq m (6.7million sq ft) â€“ an increase of 113% on December 2000. It is worth noting that only 18% of this supply is Grade A, reflecting the fact that the majority of the increase was due to businesses releasing surplus office space onto the market rather than developers overbuilding.
While the economic outlook for 2002 remains difficult to forecast, FPDSavills believes that confidence will return to the City during the first six months of the year. This will ensure steady, if below trend, levels of take-up. However, further space rationalisation and increases in the vacancy rate are also expected creating a gentle downward pressure on rents throughout the City office market throughout the year.
Philip Pearce, head of FPDSavillsÂ' City office leasing and development team, comments: 'The prospects for the City office market depend both on sustained demand and a recovery in financial sector confidence leading to less surplus space being released onto the market. While the recovery in take-up over the final quarter of last year is good news the outlook for 2002 and beyond is very dependent on what happens to the supply-side of the equation.'