Commercial Property News and Comment

London Office Markets Bounce Back After 11 September

January 2002

LONDON-New research from agents FPD Savills shows that the impact of the 11 September atrocities and the ensuing economic disruption on the central London office markets was not as severe has been feared. In both the City and west End markets take-up increased in the final quarter of 2001.

In the City of London, FPD Savills calculates that take-up reached 1.42 million sf over the final three months of the year, a 46% increase on the previous quarter. This took take-up for the whole year to 6.12 million sf. However this figure is down 11% reduction on performance in 2000, which was the strongest year the City office market had witnessed since 1987.

And in the West End final quarter take-up reached 825,826 sf, up on both the second and third quarters of the year. This brought the annual total to 3.3 million sf against 4.1 million sf in 2000, which when the market saw the strongest take-up for a decade.

Despite these positive figures, FPD Savills is sounding a warning note over vacancy levels. In the City the vacancy rate rose by 113% during the course of 2001, from 3.9% of stock at the beginning of the year to 8.3% at the year end. The City now has 6.7 million sf of available office space and if voids continue at this level FPD Savills expects gentle downward pressure on rents through 2002.

Philip Pearce, head of FPD Savills' City leasing and development team, said: "The prospects for the City office market depend both on sustained demand and a recovery in financial sector confidence leading to less surplus space being released onto the market. While the recovery in take-up over the final quarter of last year is good news the outlook for 2002 and beyond is very dependent on what happens to the supply-side of the equation."

And in the West End vacancies increased from 1.8% of stock at the beginning of 2001 to 4.7% by the year end, with 5.69 million sf available. Again, FPD Savills is forecasting downward pressure on rents, especially during the first half of 2002.

Adam Hetherington, Head of West End Leasing and Development said: "Despite increased supply, demand is proving resilient and will return to trend by the second quarter of this year as we see the first signs of the predicted recovery in the US economy and improving business confidence."

By Graham Parker - Jan 9, 2002