The amount of vacant office space in central London has increased by 36.5% in the last 12 months as companies affected by the economic downturn have shed staff, consolidated their property holdings or relocated to alternative locations.
The figures in global property adviser Cushman & Wakefield's new Central London Business Briefing show that just over 14 million ft² (approx. 1.3 million m²) or 5.72% of office space is now lying vacant across the capital's main commercial districts of the West End, City and Docklands. Although the figure is the highest for two years (since March 2007), the commercial property market is well placed to recover on the upturn because developers have been much more cautious in building speculative offices without pre-agreed tenants. At the height of the recession in 1992, for example, the vacancy rate in Central London stood at 16.2%.
In the City of London and Docklands the supply of office space now stands at 9.2 million ft², an increase of 25% in 12 months. In the West End the increase in supply has been more marked up by 70% over the year to stand at 5 million ft².
In a bid to attract occupiers, landlords are now in some cases offering rent free periods in excess of two years on office leases of 10 years. In the West End, for example, incentives have tripled in length over the last 12 months. Rents for grade A prime properties are down by an average of 20% in 12 months to stand at £52.50/ft² in the City. They are expected to fall another 14% through 2009 to around £45/ft² a level not seen since 2003. In the West End market, rents on prime offices are down around 23% for the year although there remains a relatively limited supply of space at the top end of the market.
The fall in rents and the availability of space now provide one of the best value opportunities for corporates to locate or relocate to better premises in London and a number of major deals have been agreed in the last quarter of 2008. These included JP Morgan Chase's 1.9 million ft² pre-purchase of Riverside South, Canary Wharf. This deal took the take-up of office space in City & Docklands to 6.5 million ft² for 2008. Stripping out this deal, however, and the annual figure of 4.6 million ft² is the lowest for five years. One of the largest deals in the West End market was the 84,000 ft² letting to Halcrow in Brook Green. A total of 2.9 million ft² of space was taken up for the year against a long term average of 3.2 million ft².
In both of London's main office markets, financial services is no longer the most active sector looking for space. In the City & Docklands, professional services, technology/media/telecoms (TMT) and legal sectors remain relatively active whilst in the West End the manufacturing, TMT and professional services are expected to remain dominant through 2009.
James Young, head of Central London offices, Cushman & Wakefield, said: "2008 has not been a great year for London's commercial property market to say the least. The financial downturn has been felt across all of the city's office markets but we won't see a return to the massive vacancy rates of the early 1990s. Although there is new development coming through over the next two years, this is not on the same scale as the last recession. London will remain a global business and financial hub and the favored European or global headquarter location for most major corporates, particularly as the weakening of sterling has made it a more cost effective location. It will be the first western capital to benefit from the expected recovery and occupiers are now in a unique window of opportunity to consolidate their London properties or relocate to better quality premises at value for money prices."
The weakness in the occupational market and the shortage of finance has also affected the amount of investment in central London offices. In 2007 £19.7 billion was poured into London commercial property by both UK and international investors making the city Europe's number one investment destination. In 2008 that figure slumped t