Take-up in the City dropped by 33% in the first quarter of 2012 as last year’s European financial crisis hit occupier sentiment.
Figures from Knight Frank show a take-up volume of 1m sq ft in Q1 2012, down from 1.5m sq ft in Q4 2011.
The fall comes as the amount of available space rose by almost 10%, climbing from 10.4m sq ft at the end of 2011 to 11.4m sq ft in the first three months of the year.
William Beardmore-Gray, Knight Frank’s head of City leasing, said the effect of financial turmoil typically took six months to be felt in the City office market.
He said: “As a consequence of the volatility we saw in the financial markets six months ago, we have seen a weakening of demand in Q1 2012 – though not to the extent that occurred in Q1 2009, when take-up dropped to just 730,000 sq ft.”
However, Beardmore-Gray added that the figures were historic and did not reflect the direction in which the market was moving as the economic outlook has improved over recent months.
“A number of insurance and law firms have large office searches in the City, with deals expected to go under offer in the coming months. Consequently, we expect demand to recover as the year progresses, steadily pushing down supply,” he said.
KF forecasts that 9.9m sq ft of City office space will be available in Q4 2012, with prime rents steady at £55 per sq ft.
The agent revealed a similar picture in London’s West End with take up falling from 1.3m sq ft in Q4 2011 to 1m sq ft in Q1 2012.
The amount of available West End office space increased from 4.9m sq ft to 5.2m sq ft over the period.
KF said available space at the end of the year was likely to be around to be 4.7m sq ft, with rents rising to £97.50 per sq ft from £92.50 per sq ft.
Tim Robinson, KF’s head of West End, said: “A small drop in take-up was inevitable given the difficult economic backdrop, but we are seeing continued strong demand emerging from the technology sector, with household names like Wonga, Money Supermarket and TomTom all active.
“While supply increased, it is still very low by historic standards with the vacancy rate at less than 6%, compared with a long-run average of 8%. The constrained development pipeline will keep supply levels in check going forward. There is currently 1.6m sq ft under construction, much of which will not complete until 2013.”
jack.sidders@estatesgazette.com
