The gulf between office availability and take-up has widened further in quarter three of this year, driving down headline rents in Central London says DTZ.
According to DTZ Research´s latest quarterly Central Offices Research, availability in the third quarter of this year has risen sharply to reach 1.95 million sq m (21 million sq ft), an increase of 14% (compared to 6% over the previous quarter). Availability in Central London now stands at 10.4% of stock, double the level recorded a year ago.
This is in stark contrast to the rate of take-up which has seen levels fall significantly over the last three months from 0.4 million sq m (4.3 million sq ft), recorded in the second quarter, to just 0.24 million sq m (2.6 million sq ft).
As a result, prime headline rents in the core areas of the City and West End have continued to slide and are now estimated to be Â£619 per sq m (Â£57.50 per sq ft) and Â£727 per sq m (Â£67.50 per sq ft) respectively.
Transactional evidence on newly built space in core locations is sparse, but the expectation is that headline rents will continue to come under pressure over the next few months, coupled with an increase in the value of inducements, which have moved out considerably over the past year.
Jonathan Evans, Head of West End Agency at DTZ, comments: 'The picture for the immediate future still remains uncertain, with signs that occupiers that do not have to move immediately are delaying, and landlords are becoming increasingly keen to agree lease renewals at very competitive rate.
'Corporate occupiers are still in the throes of rationalisation and as a result there is a continued emergence of tenant-controlled space coming to market, which is still the primary driving force behind the escalating levels of office availability.
'On the positive side, the West End is a robust market even in times of economic uncertainty, as it´s tenant make-up is a diverse group of occupiers with little reliance on a specific sector. Demand is emerging from the professional services sector, utilities and the Government with one of the drivers being lease expiries, break options and tenants seeking to push down their property costs by taking advantage of the gap between supply and demand.'
According to DTZ, the value of investment transactions in the third quarter of 2002 amounted to Â£1.35 billion, a substantial decrease on the Â£2.5 billion recorded in the previous quarter. However, investment activity in the West End continued to buck the trend in quarter three with the total number of investment acquisitions climbing to Â£370 million in contrast to just Â£173 million in the second quarter.
Anthony Barnard, Head of West End Investment, adds: 'The market has seen continued demand from investors seeking long term gearable income streams which has been demonstrated by a number of high profile purchases in the Victoria market.
'In addition to this stream of activity there are a substantial number of private investors seeking trophy freehold assets within the West End core. Falls in rents over the last 18 months are encouraging investors to return to the West End market as they are of the general view that rents in the West End will bottom out during the course of the next year.'
(source: DTZ International)