The amount of available office space in the City of London is at a three-year low, driven by a rise in prelets and less refurbished property.
The current vacancy rate of 4.9% is the lowest since the winter of 2016, according to Colliers International.
Preletting activity surpassed 3m sq ft in 2019, Colliers’ data showed, more than double the 10-year average and significantly higher than 2018’s 2m sq ft.
City core offices saw rental growth of 5% in 2019 to £70-£72.50 per sq ft for the best mid-floor accommodation.
However, take-up levels dropped by 10% from 7.2m sq ft in 2018 to 6.5m sq ft.
On a London-wide basis, average headline office rents increased by 2% during 2019.
London-wide vacancy ended the year close to 5% – marginally below the level recorded at the end of 2018.
James Walker, head of City agency at Colliers, said: “The pressure on City space is having a knock-on effect on occupier behaviour, with them now having to anticipate lease events as much as four years in advance. Not only that, but the traditional large occupiers are coming up against smaller businesses as tech and media firms are attracted by competitive rents compared to other London markets. We have seen the average deal size for prelets fall to 65,000 sq ft from 115,000 in 2017 as a result.”
Availability of new and refurbished space has also fallen, with the supply pipeline failing to keep pace with demand, according to Colliers. In the past 18 months, new and refurbished availability has fallen by 45% and has only been supplemented by 90,000 sq ft of surplus space at the recently completed 100 Bishopsgate, EC2.
Availability of new and refurbished stock in the City is currently 90% below its previous peak, at 600,000 sq ft.
Guy Grantham, research director at Colliers, added: “The City has been affected by a perfect storm of increased demand, a lack of speculative development and a rush on refurbished space. Early lettings during construction are becoming significantly more popular, and we expect to see several opportunist refurbishments happen next year, which will perform well as landlords look to turn around space that has been vacated by relocaters and movers.
“On current standings, it looks like the undersupply will persist for at least the next 18 months as these solutions fail to fully solve the lack of space.”
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