London office availability no longer rising

Nia Williams

January 21, 2010

Demand for business property increased in the fourth quarter of 2009 with office space and industrial property proving particularly popular but demand for retail space continued to decline. Fourteen per cent more chartered surveyors reported a rise in tenant demand up from 8% in the previous quarter. This is the second successive rise in tenant demand and the first time that there has been an upward trend since early 2007.

Eight per cent more chartered surveyors reported a fall in available floorspace in London down from a positive balance of 37%. This is the first time the net balance for office availability has turned negative for two years with central London witnessing the strongest upturn in activity. As a consequence, the lack of available space has had an impact on office rents in the capital which stabilised for the first time in two years.

These positive improvements have increased the expectations of chartered surveyors for future lettings with optimism rising across the office and industrial sectors. The biggest rise in confidence has been in the office market followed by the industrial sector although expectations towards retail lettings remains flat. Investment transactions rose across all sectors with 35% of chartered surveyors reporting a rise, up from 7% in the third quarter.

Commenting, Oliver Gilmartin, RICS senior economist said: “Surveyors have turned mildly optimistic on the outlook for rents in London for the first time in over two years outside the retail sector as the capital continues to drive the recovery. Whilst retail property has seen the strongest rebound since August it is lagging the occupier market turnaround. However, the news that lease lengths are no longer declining in the capital and incentives are being scaled back for offices and industrials will come as some comfort for investors whom have driven a sharp rebound in pricing since the Autumn.

“To be sustained, the rapid rise in capital values in the London market needs to be supported by further rental increases particularly as prime yields are rapidly approaching financing costs. The reluctance of banks to lend to developers has clearly added some support to rents in London as available space is no longer rising outside the retail sector. Significantly, development starts continue to fall back.”

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