28 October, 2010
Take-up in Central London in Q3 rebounded, rising to 3.7 million sq ft from 2.8 million sq ft in Q2, and bringing the Q1-3 total to nearly 11 million sq ft, according to DTZ Research’s latest Central London report. The ‘Property Times Central London Q3 2010’ report highlights that demand is taking place at a time when deliveries of speculative developments are declining. Completions in 2011 will total 2 million sq ft, only a third of the long-term average over the last 25 years.
This shortfall in supply was caused by a strong decline in development starts in the aftermath of the financial crisis in 2008. Since the Lehman collapse in Q3 2008, only 2.8 million sq ft has been started. This compares with nearly 13 million sq ft in the two year period leading up to that point.
Martin Davis, Head of UK Markets Research, DTZ Research said: “If take-up continues at its current level, with only 2 million sq ft of speculative space being delivered in 2011, we expect the current strong upward pressure on rents to be sustained.”
The report highlights that strong demand for grade A space in the face of declining supply will continue to support prime rental growth. DTZ forecasts end year rents of £55 per sq ft and £85 per sq ft in the City and West End respectively, growing to £60 and £95 per sq ft by the end of 2011.
In the City, availability rose by 120,000 sq ft in Q3. After falling for 9 months, the availability ratio in the City has remained fairly static during 2010, hovering between 8-9%.
Alistair Brown, Director in DTZ’s City Agency team added: “The City is experiencing an unprecedented peak of lease events with in excess of 16 million sq ft of expiries or breaks occurring between now and 2016. With many of these lease events being on obsolete buildings and further occupier consolidation likely, healthy demand will be sustained moving forward.”
In the West End, availability remained static and new availability continued to shrink, ending at 860,000 sq ft, half of its Q2 2009 level. Financial occupiers took the largest share of take-up by business sector in Q3.The sector has taken more than 25% of floorspace occupied over the first nine months of 2010.
Unlike other core markets, availability in Mid-Town continued to rise until Q1 2010, but it has now declined substantially. The amount of space leased increased for a fifth consecutive quarter in Q3, and in 2010 it has so far averaged 330,000 sq ft per quarter.
Availability fell significantly in Docklands, by 300,000 sq ft, which was caused principally by the withdrawal by Bank of America of its available space in 5 Canada Square, either for retention for its own use or for surrender to Credit Suisse. Whether for its own use or for its lessor, this is a significant move reflecting recovering confidence by the large investment banks, which bodes well for the Docklands market.