How low can it go? That’s the question on every London office agent’s lips as we head towards the last quarter of 2015.
Supply of office space in the capital is now at an historic low. At the end of the second quarter we saw availability across London’s markets struggle to rise above the 5% mark. In half of the six markets covered by EGi Research, availability was around 4%.
But the first half also saw the largest amount of starts since our records began in 2003. Figures show 27% of all available space is under construction.
Unfortunately, there is little hope of London’s availability woes going away before the end of 2015. Almost half (45%) of the 4.8m sq ft due to complete this side of 2016 has been prelet, lowering the amount of available space reaching the market. This is especially the case in the City, where the amount of space due to complete in the second half of 2015 that has already been prelet rises to more than 80%.
There is around 28m sq ft of space on the market, but only 9m sq ft that actually exists at present. Of this, only 1.1m sq ft is capable of accommodating a large-scale requirement of more than 100,000 sq ft.
What will that do to this year’s take-up levels? As we begin the final quarter, are we likely to see last year’s strong levels of absorption? It is still a little too early to reach a verdict on third-quarter take-up, but considering the strong start to the year – and the fact that 2.5m sq ft is currently under offer –it looks like we are going to see strong demand, though maybe not quite at last year’s high levels.
But strong occupier demand means only one thing: a few more bites into London’s already chronically low supply.
What is certain is that we are likely to see more prelet activity earlier, as restricted availability makes it more important. With the cycle turning and the peak in sight, it might take a brave developer to do anything to alleviate this, which just begs the question: can market availability drop another notch or will it just be left in limbo?
Victoria Bajela, head of London offices research, EGi
