FPDSavills: Office rents will survive the wave of uncertainty unsettling the M25 market

Prime office rents will survive the wave of uncertainty unsettling the M25 market and are unlikely to see a fall of more than 10% despite being tarnished by the fall in business confidence says FPDSavills.

According to FPDSavills’ Greater M25 Office Survey, average Grade A headline rents in the western corridor surprisingly held up relatively well in 2001, falling by only 2.5% (£349.83 per sq m/£32.50 per sq ft) by the year end. However, it is difficult to predict anything but further falls in values in 2002, as occupiers offer discounted rents and enhanced incentives on assignments and sub-leases resulting in rental slides of up to 10%.

Be that as it may, Jeremy Bates, director of FPDSavills, does not expect to see rents fall by more than 10% in 2002 due to the likelihood of an upturn in sentiment and leasing activity towards the end of the year. He says: “An improvement in business confidence will see a boost in take-up levels and soak up surplus supply, thereby confining the worst of the rental falls to the first part of the year.

“The relatively low level of development completions expected for the remainder of 2002 and 2003, coupled with improving market conditions towards the end of 2002, should prevent a significant rental slide. Already this year we are seeing a number of large deals with good development and investment opportunities in certain areas.”

Industry analysts predict that the IT sector will recover by Q3 this year as spending on IT will increase by 4-6% in the US, 6-7% in Western Europe and 10-12% in Asia/Pacific. Investments in e-business initiatives, the integration of websites with core business processes, mobile applications and pent-up pressure for new projects by major corporates are expected to spearhead this recovery. This will provide the western M25 office market with some much-needed corporate demand.

Looking further ahead, Bates believes that given current market sentiment it is unlikely that there will be any significant additions to the development pipeline over the next 9-12 months. He concludes: “Although we do not expect to see a demand and supply equilibrium achieved this year, we would expect to see a much more balanced market in 2003.”

(source: FPD Savills)

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