London, 14th July 2011
– According to the latest research from Jones Lang LaSalle
, a marked uplift in active named occupier demand in the Western Corridor region (West London and Thames Valley) was witnessed in the second quarter of 2011 (Q2 2011). Over 3.2 million sq ft of requirements for office space over 5,000 sq ft was recorded which is a 45% increase compared with Q1 2011 and 17% higher than the equivalent period last year (Q2 2010). Active named demand levels in Q2 2011 improved by 51% compared with the five year average with requirements once again dominated by the Manufacturing and Services sectors, which accounted for around 85% of all active named demand in the Western Corridor.
, head of Jones LaSalle’s National Office Agency
team, said “We have seen an increase in the number of large scale requirements in Q2 2011, with 18 active requirements for over 50,000 sq ft of office space, compared with just 13 in the first quarter of the year. The average requirement size has also increased by 12% to around 40,000 sq ft.”
James continued: “However, take-up in Q2 was down due to occupier confidence remaining weak and deals taking time to complete. There is a good pack of deals in solicitor’s hands including Astellas Pharmaceuticals which is now under offer on 100,000 sq ft in Chertsey and, with growing active demand, we expect this to translate into more deals in the second half of 2011.”
This near term caution was reflected by office take-up in Q2 2011 which was relatively subdued, with around 169,000 sq ft let across the Western Corridor
region however there is a further 239,000 sq ft of space currently under offer. Jones Lang LaSalle expects to see further consolidation, particularly within the Pharmaceutical and ITT sectors, which will continue to drive leasing activity over the next year.
Overall office supply in the Western Corridor fell to 12.2 million sq ft in Q2 which reflects an overall vacancy rate of 14.2%. Compared with the same period last year, overall supply has fallen by 5.8%. While some space has been reabsorbed through leasing activity, Jones Lang LaSalle highlights that a number of buildings have changed used, particularly from office into residential. Grade A supply also fell to its lowest level since 2008, to reflect a vacancy rate of 5.9%. However, there remains considerable variation across the region with Grade A vacancy rates in West London currently at 3.3% compared with 8.6% for the Thames Valley.
Across the Western Corridor market, rents increased marginally over the quarter (+0.1%) driven by further upward pressure in Chiswick. Incentives were stable at 30 months rent free on a 10 year lease in the Thames Valley and 24 months in West London. We expect annual growth of 1.8% over 2011 taking the average prime rent for the region to around £28.00 by year end, from £26.00 today.
Jones Lang LaSalle also highlights the level of viewings undertaken by occupiers improved in Q2, with around 1.8 million sq ft of office inspections undertaken by its team compared with around 1.3 million sq ft in the previous quarter. Currently around 282,500 sq ft of space is under construction speculatively, however none of this is scheduled to complete this year.
James Finnis added: “Grade A supply is being eroded and the development pipeline which remains at a record low is failing to replenish the Grade A space being taken up. We are forecasting a pinch point in 2012 where, assuming current levels of demand, rents will increase markedly for the best space in areas of limited supply.”
Speaking about investor activity in the Western Corridor region, Mark Wilson, joint head of National Investment
at Jones Lang LaSalle, said: “Investment activity picked up in Q2 with £99.1 million traded, down slightly on the previous quarter but up by 66% in comparison to the same period in 2010. This takes half yearly investment volumes for the Western Corridor to £210.9 million, reflecting an increase of 30% compared with the first half of 2010. We forecast a rise in investment volumes over the second half of the year as a reflection of improved investor sentiment due to the current pricing levels and onset of rental growth.”
According to Jones Lang LaSalle’s research UK investors were net sellers of £59.8 million; with UK property companies the primary vendors, selling £108.6 million over the first half of 2011. Prime yields were stable at 6.50% in West London and the Thames Valley.