Vacancy rates for new office stock across the capital’s most sought-after submarkets have reached their lowest levels since records began.
Availability in newly constructed buildings has fallen to 0.3% in the West End core of Mayfair and St James’s, and 0.5% in the City of London, according to research by Knight Frank. This equates to 379,394 sq ft, which is less than eight months of average take-up for new office space.
Across all office stock, however, vacancy rates are much higher at 9%, with most space being in average to lower-quality buildings.
With 18m sq ft of lease expiries due between now and 2028, Shabab Qadar, London research partner at Knight Frank, said: “Lease expiries will be the primary driver of demand going forward, which is evidenced by current active office requirements, but the development pipeline remains constrained because of planning and financing challenges. The contrasting fortunes within the London office market continue to be laid bare, with the best space commanding premium rental values but secondary stock requiring significant capital expenditure in order to be future-proofed.”
Availability in best-in-class stock has been pushed down by a flurry of recent big deals, including prelets from Legal & General for 190,000 sq ft at Woolgate on Basinghall Street, EC2, and Citadel for 250,000 sq ft at 2 Finsbury Avenue at Broadgate, EC2.
This market momentum appears to be continuing, with nearly 2m sq ft of deals under offer in the City and 1m sq ft in the West End. Knight Frank’s research found nearly 11.5m sq ft of current active office requirements – a 10% increase on the previous year.
This level of demand in the presence of such scarcity has pushed prime rents in the City up by 16% over the past year to £90 per sq ft and up by 7% to £150 per sq ft in the West End.
Philip Hobley, head of London offices at Knight Frank, said: “The lack of available prime space means that companies are securing future office requirements further ahead of time, given competition in locations where vacancy is at historically low levels. A sizeable proportion of the lease expiries in the coming years is for space within older office buildings lacking what modern occupiers want, which means that the market will further bifurcate.”
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