Dip in office vacancies 10th May 2012

A lack of new space has seen vacancy levels dip slightly across the M25 office markets, despite subdued demand. According to Colliers International’s South East offices snapshot, Thames Valley availability rose in particular, albeit by a modest amount, for the first time in eight quarters with vacancy unchanged at 16.2%. Quarterly take-up was down for the second successive quarter at 636,074 sq ft, more than 55% below the 10-year quarterly average.

Colliers said that within this take-up was lifted by Nestle's deal to take 126,000 sq ft at 1 City Place, Gatwick and Detica signing for 60,041 sq ft at Surrey Research Park. Colliers said that regardless of inconsistent transaction levels, a shortage of quality product is continuing to drive rental growth in specific locations. A number of centres have seen sharp annual uplift driven by competition for Grade A product.

Guy Grantham, director of research & forecasting at Colliers International, said: “In spite of subdued demand, a lack of new space coming to market allowed vacancy to experience a modest fall across the overall M25 market. “Although Thames Valley take-up was down for the second successive quarter, a shortage of top quality product is continuing to drive rental growth in specific locations. West London centres have seen some sharp annual uplift driven by competition for Grade A product with headline rents in Chiswick (+29%), Richmond (+23%) and Windsor (+13%) the prime examples.”

Philip Papenfus, head of South East Offices, said: “There is a consensus that the continuing economic uncertainty has impacted negatively on take-up across the South East in 2012 to date. We are however encouraged by under offer levels in excess of 200,000sq ft and a number of larger requirements which although slow to progress should transact during 2012. “There are also significant levels of break clauses and lease expiries coming through over the next 18-24 months, instigated by the peak in M25 demand in 1989, where 25-year leases were signed as the norm. As a result there is a healthy potential for occupiers to upgrade from their existing accommodation, creating ready-made demand for Grade A and refurbished product.”