How bright is the future for London offices?
To gauge the future of London offices we must first appraise where we stand currently.
Rolling 12-month take-up stands at 10.2m sq ft – the lowest it has been in four years – as the market starts to decelerate, feeling the occupational impact of the announcement of the EU referendum and, thereafter, the fall-out from the result.
Deal volumes remain strong but companies’ shrinkage of space requirement means that high activity within the market does not represent the corresponding take-up levels that we would traditionally expect from more than 300 individual transactions.
To gauge the future of London offices we must first appraise where we stand currently.
Rolling 12-month take-up stands at 10.2m sq ft – the lowest it has been in four years – as the market starts to decelerate, feeling the occupational impact of the announcement of the EU referendum and, thereafter, the fall-out from the result.
Deal volumes remain strong but companies’ shrinkage of space requirement means that high activity within the market does not represent the corresponding take-up levels that we would traditionally expect from more than 300 individual transactions.
This has meant that central London office availability rate has drifted outwards to 6.9%, eroding the scarcity that had built up during the years of plenty.
Our forecast for the future development pipeline is that upwards of 14m sq ft will complete by early 2019, and whilst this new space is welcome in terms of renewing London’s occupational offer, it now comes at an inflection point for the market as a whole and will have a noticeable knock-on impact on rental dynamics therein.
Critically, conversions from office space continue apace and our view is that we will continue to see more of these come through in the medium term.
Almost 500 buildings are up for lease break or expiry in their entirety before 2023, with a further 1,500 premises holding some space that will be the subject of an occupiers’ review in that same period.
What is therefore likely in the medium term is that a good number of landlords are either going to find themselves needing to fill office space in a market moving towards a material space surplus, or seeking to convert their premises to alternative use types in order to realise value.
London Offices: How bright is the future?
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