Mind the gap 23rd November 2012

The difference between asking rents and achieved rents in central London has widened in the last two quarters after three years of the gap continuing to narrow, while in the South East and fringe London locations achieved rents have at last begun to turn a corner, according to CoStar UK Analytics research.


CoStar’s UK Market Pressures research employs the thousands of transaction deals recorded every month by its 150-strong research team to monitor the spread between asking rents and the amount achieved.

According to the latest data, in central London achieved rents are 4.7% below asking (a spread of -4.7%) whereas the spread in the main regional cities stands at -8% and in the South East (excluding London) at -8.4%.

With the exception of Central London, all of these readings remain below the average of the last eight years. The figures show the spread for achieved rents against asking rents in central London offices has widened slightly in the last two quarters after nearly three years of moving closer together while the regional city markets continue to see achieved rental levels slip against asking prices.

However, from an admittedly low base South East and fringe London rents have at last begun to see the gap between asking and achieved rents close.

“There is no doubt that the recession is affecting the regions far more than London,” said Mark Stansfield, Senior UK Analyst at CoStar/PPR. “This is visible both in our analysis of average rents, which are softening in the regions, and in the asking-achieved spread.”

However, the present economic stagnation is now being felt in the hitherto robust Central London occupier market. The constant recovery of the spread from -11% over the past three years has now come to an end deteriorating, albeit slightly, in 2012 Q3.

“We have observed a more protracted deterioration in the regions. Weak demand and high vacancy are reasons for this drop,” said Stansfield.

“The spread is however above the low of -10.5% reached in mid-2009.” Conversely, CoStar/PPR’s analysis points out the improvement in the spread of two consecutive quarters in London fringes and the South East (excluding London) office markets, in particular the latter.

Stansfield adds: “Our data suggest that occupier demand and rental growth is now spilling out to the fringes of London and the M25 Corridor and Thames Valley, which is one of the factors that can compress the spread. “Going forward,”

Stansfield continues, "we expect the patterns in the South East and London fringes to continue, as accommodation cost considerations will be pushing occupiers toward the London periphery.

"As the current short term economic outlook is gloomy the regional spread can only see a stabilisation at best, but the chances of worsening further are high, at least in the coming two quarters. In Central London the spread is likely to widen a bit further and then stabilise. We expect a further compression in the second half of 2013."