Central London office stock increased by 12% during the second quarter to 17.2m sq ft (1.59m m2), according to Jones Lang LaSalle, a far smaller rise than the first quarter’s 43 % rise. Vacancy rates ended the quarter at 8.1% with Grade-A vacancy at 5.9%. West End supply finished at 6.1m sq ft, reflecting a rise of 10% on the first quarter, but speculative construction fell by 4% to 2.3m sq ft, with large non-core schemes dominating.
In the City, overall supply rose by 9% to 9.9m sq ft owing to the speculative completion of new projects and minor refurbishments. But speculative building fell by 27% to 3.7m sq ft.
Almost 1m sq ft of speculative completions hit the market during the second quarter. JLL expects a further 2.9m sq ft to complete in the second half of the year, although more schemes are being postponed to 2010 as construction schedules are extended.
After expected completions of 2.1m sq ft in 2010, only 1.2m sq ft is set for completion in 2011 and 2012. With very few schemes due to start, the lack of new product after 2011 should support rental growth from 2012 and could cause significant problems for larger occupiers with potential requirements.
At the same time, opportunities could emerge for developers over the next 12 months as banks start to take control of failing developers and non-viable sites, and seek partners who can complete the project. Alternatively, lenders could sell sites at discounted levels.
