West End occupiers face uphill battle for space and rising rents

Cluttons report reveals shortage of good quality West End office space is taking its toll on activity levels

Article posted: 25 Mar 2011

According to the latest figures published this week by property consultants Cluttons, a shortage of good quality office space in the West End is taking its toll on activity levels, leaving occupiers facing an uphill battle to secure space and the prospect of higher rents.

The vacancy rate over the quarter fell from 5.9% to 5.4%, the lowest level since January 2009. However, in certain submarkets - for example, office space in Soho - the stock shortage brought around a vacancy rate of 3%. Cluttons expects this pressure to intensify over the next two years, as a large number of occupiers with leases taken out in 2006/07 face breaks or expiries.

Over the last quarter, there has been a 20% increase in West End space under construction, all of which is speculative. While these developments will offer a temporary and partial easing of occupier demand, Cluttons anticipates that pre-lets will increase in order to fix costs given the prospect of higher rents over coming years. While a surge in pre-lets will enable some occupiers to move to a preferred location within the West End, others will look to edge of core locations in order to contain costs.

Cluttons also reports that investment volumes remain buoyant, as investors look to wealth preservation through good quality stock which provides a stable return. Prime West End yields are at 4% with transactions for offices in Mayfair and St James's closing in around this figure. A further significant hardening in yields is not anticipated over the coming months. However, there is growing interest in the repositioning of investments through the re-development, refurbishment and asset management opportunities presented by more secondary stock. Opportunities outside of the prime Mayfair and St James's core will gain increasing attention throughout 2011.

John Wood, Head of Cluttons' Commercial division commenting on these latest figures, said: "We fully expect things to get more challenging for occupiers before they improve and forecast that West End rents will rise by an average of over 8% per annum over the next four years."

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Posted by Sara