Office vacancy rates in the core London markets of the West End and the City are now at their lowest for at least five years, according to global real estate adviser Cushman & Wakefield. Vacancy rates in the West End stand at 4.1% and in the City of London at 6.2%. The figures are good news for those developers with major office schemes either under construction or with planning permission and are likely to encourage further speculative development to take advantage of the increased demand for prime space.
The City of London.
The West End is experiencing a developer's 'Shangri-La moment' with the combined effect of a vacancy rate of 4.1% (the lowest since Q3 2001), prime rents now touching £117/ft² (up from £110/ft² in Q1) and active demand for office space up almost 20% on Q1 at 6.2 million ft² (with 'only' 2.5 million ft² of new space in the development pipeline).
The outlook for the West End remains good. Options for occupiers are slim in the traditional cores of Mayfair and St James's which means more peripheral areas such as Victoria and Paddington will likely benefit from this increased demand. The financial sector is dominating letting activity accounting for 24% of the 1.9 million ft² of space taken in the West End so far this year and also accounting for 17% of the active demand of 6.2 million ft².
Guy Taylor, head of West End offices, Cushman & Wakefield, said, "There is no sign at the moment of the West End market stalling. All of the indicators are positive and the only thing that may effect the take up of office space is simply the relative lack of new development currently available. Canny developers however are now moving forward with the development of new schemes which should soak up some of the demand that has been identified."
Prime office rents in the core City of London market have risen 8% since the start of 2007 and are up 18% year on year to stand at £65/ft². Net effective rents have increased 50% over the last 18 months. Combined with a vacancy rate across the City & Docklands that has fallen almost 20% so far this year from 7.5% to only 6.2% (the lowest since Q1 2002), and active demand up 20% to 7 million ft² since the start of the year, the market is experiencing a period of sustained and significant growth.
Whilst vacancy rates have dropped, total demand levels have correspondingly soared by 40% in the year to date with take up of office space standing at 2.9 million ft². An extra 20,000 net jobs are expected to be created in the City by 2010 and this increasing level of demand for office space is expected to continue.
These buoyant conditions have encouraged developers to move ahead confidently with major new schemes. There is currently 6.4 million ft² under construction or being refurbished which is due for delivery by the end of 2009. There is also a further 8 million ft² which has planning permission or where demolition has already started.
James Young, head of City offices, Cushman & Wakefield, said, "What we are witnessing in the City and Docklands market is a combination of both increased demand for office space and a large, but sustainable, development pipeline. This should ensure that both rental growth and increased take up wi