London office space supply crunch to persist

The amount of office space available across London will continue to be limited for at least the next 18 months, according to Colliers International. Of the 8m sq ft of office space due to complete this year 70% (5.7m sq ft) is already prelet or under offer. In the West End 85% of space set to complete in 2020 is already prelet with an increasing number of the submarkets now completely devoid of new or refurbished space. Just 150,000 sq ft is available across five schemes set to come to the market in the first half of this year, Colliers reported. Meanwhile, in the City core 1.3m sq ft of speculative space is currently expected to complete in 2020, a further 2.6m sq ft has already been prelet. Even so, the average deal size for prelets in the City is falling. In 2017, the average deal size was around 115,000 sq ft, but has fallen over the past two years to 65,000 sq ft. This leasing activity in London continues on the trend seen last year when 84% of space completing across the capital was prelet prior to completion. Occupiers also absorbed 92% of completed space in schemes of 50,000 sq ft and above prior to completion. Colliers adds that total speculative completions, based on current estimates, are just edging above 1.6m sq ft. A further 815,000 sq ft is prelet or under offer for 2021 and Colliers expects more robust preletting activity to continue throughout 2020. This demand, Colliers believes, will lead to the emergence of several “opportunistic” refurbishments as landlords of space being vacated by movers and re-locators look to turn around product quickly and launch into an undersupplied marketplace. Guy Grantham, director of research and forecasting at Colliers International, said: “There is a supply issue; a lot of occupiers are struggling find what they want, with core locations increasingly devoid of 50,000 sq ft plus product. “The scale of preletting over the past 12-18 months has convinced occupiers to come out earlier into the market. New space is being soaked up and there is not a lot of new supply coming through. With a sturdy level of occupier demand coming back into the market, supply conditions will remain constrained in the medium term.” He added: “Over 6m sq ft of potential deliveries are now earmarked for 2023-24. While this will not address the acute supply shortages inherent within the market in 2020-21, existing occupier nerves about delivery of schemes beyond that time period will enable larger, medium term requirements to acquire space in developments that have firm delivery dates.” To send feedback, e-mail louise.dransfield@egi.co.uk or tweet @DransfieldL or @estatesgazette