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Tower letting

Gem underway

Design contest in SE1

Contractor appointed on tower

Southbank site finds new owners

SE1 scheme start

Midtown scheme appeal

Mixed use scheme for Kensington

Canary vacancy rate rises

Derwent gears-up for EC1 refurb

Two for the price of one.

Bye bye to the Trocadero?

Whitbread to move to CityPoint?

Surge in London Office Development

London Office Prospects 2011: 75m sq ft of lease expiry hopes drives market forward

A surge in London office development is coming, with major office buildings planned to come on-stream in 2012-2015 to meet an anticipated increase in demand.

This demand is expected to come from those occupiers, which took space in the mid 1980’s boom and early 1990’s, with leases coming to an end on what is now outdated space.

Our research on occupier ‘moves’ in central London indicates a potential of up to 17m sq ft of lease renewals due in 2011, and an average of about 15m sq ft a year of lease expiries a year up to 2015.

The question is “How much of this lease expiry-led ‘demand’ will result in new space being taken-up?”

The London office market is fairly consistent on office space take-up with the average being about 10m sq ft a year over the last decade. In these terms 2010 was above average with over 11m sq ft of office space taken-up, the majority in large pre-lets.

If half of lease expiries (say 7.5m sq ft) each year actually turned into office ‘moves’, this would then mean a further 2.5m+ sq ft of office demand would have to come from existing occupier expansion and new ‘start-ups’ to achieve even the average for annual take-up.

This would then mean occupiers would be renewing leases on around 7.5m sq ft of office space each year with the potential for refurbishment deals. In addition the 7.5m sq ft (or possibly more) of office space vacated by ‘movers’ could be returned to building owners and would need to be upgraded for letting.

To meet the expected lease expiry-led office demand a substantial supply of new Grade A development is needed in 2011, which is not going to arrive. Those occupiers with imminent lease expiries will be unable to find prime new office space and will therefore postpone moves, increasingly turn to pre-lets, or remain ‘in-situ’ and refurbish.

In 2011 development starts will be numerous (30+ is possible) but take-up is expected to be down on 2010 levels and the majority deals are likely to be smaller, perhaps under 4,645 sq m (50,000 sq ft).

The ‘volume’ of deals done in late 2010, combined with about 46,450 sq m (500,000 sq ft) of office space now under offer, will carry the fit-out market through to summer 2011. The office market will then become one of refurbishment and restacking until a new wave of occupiers starts to take up the developments coming on-stream from late 2012 onwards.





- (01-02-2011)

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