The central London office market continues to stagnate, particularly amongst the bracket of occupiers that are looking for space in excess of circa 15-20,000 sq ft. Since 2011 we have regularly witnessed small spikes of occupier activity in some financial quarters, followed immediately in subsequent quarters by the scaling back, and regularly the complete shelving of occupier demand and specific requirements.
This is of course positive for any occupiers with a genuine and active requirement for space, particularly those looking for large (<20,000 sq ft) amounts of Category A stock.
There are currently no more than a small handful of bonafide requirements *active (*defined as a requirement for beneficial occupation during the next 18 months) within the market place for space of this size and quality. As a firm, DeVono Cresa currently have the mandate for two such requirements of respectively 40-45,000 sq ft and 30,000 sq ft.
Amazon’s much publicized requirement for circa 600,000 sq ft, can be ignored to a certain extent when assessing the strength, or otherwise of the market today. It is acknowledged as being both an exceptional ‘one-off’ and as having no discernable impact upon current supply levels, simply by virtue of the high likelihood that a purpose built scheme will need to be found and then built, to satisfy this requirement. Relocating as they are from currently only circa 3,500 sq ft of space in central London, means that it is not even the case that their move frees up a large amount of space that they no longer require, for others to benefit from.
The idea purported throughout the last 18 months by Landlords and their agents that a recovery is upon us, has not been backed up by either the numeracy or quantum of space currently being sought, or already transacted upon. Supply is indeed weak when viewed against past years, but occupier demand is weaker still, particularly in the Square Mile and it’s fringes.
The relative problem with supply, in terms of availability of stock however is acknowledged. This is due to both the appetite and ability of developers to finance development, or even substantial refurbishment of buildings; a problem they have faced since late 2008 and continues to the present day. The absence of a more usual volume of new buildings coming through the cycle of development is being felt by commercial occupiers, who by consequence are still faced with comparatively little choice on the one hand, and artificially high occupation costs on the other.
Increased levels of occupier demand specifically in the City are expected to come from the large number of leases taken on institutional terms during the 1990’s, which are now expiring, or approaching expiry. Above-average expansion rates of business sectors such as specialist financial, TMT (Technology, Media & Telecoms) and renewable energy are also seen as reasons for Landlords and those who act for them to be cautiously optimistic.
Inward investment from Asia-Pacific firms will continue to put upward pressure on capital values across London, a place still seen as difficult to beat in terms of low-risk investment and a safe-haven for the exercise of trading capital, for bricks and mortar.
All of these factors regarding potential uplift on capital as well as rental values, however, are balanced against the continued problems in the Eurozone and a world-wide debt problem that permeates both the rental and purchasing markets of commercial real estate in central London.Share: