Record lows for new build office space combined with the highest take up for 12 years is fueling rent inflation
The cranes which litter the London skyline would seem to indicate a construction boom, but nothing could be further from the truth. For the next year, the imbalance between increased demand and relatively static supply is likely to stimulate further increases in office rent across central London.
As Michael wrote a couple of weeks ago, restricted supply is making it much harder for prospective tenants to find office space.
According to research from Deloitte Real Estate, availability of office space in central London has dropped to 5.6% of the total stock, with the pinch felt most in the West End (4%) and Midtown markets (4.3%). The lowest vacancy rates since 2007! Office take up is now at its highest level since 2002 with over 10 million ft2 acquired across central London in the first 3 quarters of the year and a further 3.5 million ft2 under offer.
Demand is being fuelled by Financial and Technology, Media & Telecommunications (TMT) sectors which together have taken over 2 million ft2 so far in 2014.
The imbalance between supply and demand is likely to remain over the next 12 months with only 2 million ft2 of new space due to be completed across central London in 2015, one of the lowest levels Deloittes have ever recorded.
According to the statistics, rents have risen on average by 13% this year in the West End and a whopping 19% in Victoria. Five areas across central London – North of Oxford St, Soho, Kings Cross, Midtown & the South Bank – have now seen rents exceed previous historic levels.