Demand for London office space surges ahead

RICS UK Commercial Market Survey, Q1 2011 shows London office space outperforming other sectors

Article posted: 06 May 2011

Office space in London continued to outperform all other sectors and regions of the UK’s commercial property market during the first three months of 2011, according to the latest RICS UK Commercial Market Survey.

Demand for office space in Greater London rose dramatically during Q1 2011, with 43% more surveyors reporting increases rather than falls in demand. Office space in Central London also saw a strong increase, moving from a net balance of 17% to 39%. The main driver in demand appears to be from the financial services industry and ancillary professional service sectors looking to expand as their trading environment improves.

As available space struggles to keep pace with demand in London, interest from occupiers appears to be extending out beyond the capital. The South East was a significant beneficiary of this emerging trend, with surveyors reporting increased interest in office space, particularly from small to medium enterprises.

Nationally, tenant demand picked up at a quicker pace in Q1, with 10% more surveyors seeing a rise in demand rather than a fall. Across all the regions, the net balance for demand was in positive territory, suggesting a broader recovery in firms’ appetite to increase their businesses.

However, for much of the UK, the rise in demand was insufficient to counteract increases in available floor space. As a result, expectations for rents continued their slide for the 14th consecutive quarter; with 13% more surveyors expecting rents to fall rather than rise.

Only London bucked this trend, with rental expectations for the region increasing at the fastest pace since Q3 2007. Again, this is largely due to high levels of demand and shortage of available space in the office sector. In contrast, retail rents are expected to continue slipping, as are industrial rents - albeit to a lesser extent. Respondents to the survey noted that rent levels had been affected by changes in empty property business rates. This is a particular problem where there are high vacancy levels of office space such as in the Midlands and Wales.

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Posted by Jenni