City of London Office vacancy breaks through 10% barrier

Office vacancy rates in the City of London have broken through the 10% barrier to 10.2% in the second quarter, up from 9% in the previous quarter, according to property agency NB Real Estate.

Low demand from financial services firms coupled with new speculative developments coming to market has triggered the rise in vacancies, NB Real Estate said.

Falling capital values have seen yields in the district move out by 25 basis points in the second quarter to 5.75%, up from 5.5% in the previous quarter, according to NB Real Estate. These higher yields are attracting longer term cash-rich buyers, including German property funds and Gulf-based investors, the firm says. However, many investors who are more highly leveraged are unlikely to re-enter the fray until lending conditions relax, NB Real Estate added.

'Significantly reduced investment volumes, severe credit constraints and uncertainty around future occupier activity makes for a pretty gloomy picture overall,' said Alan Dornford, managing director of markets at NB Real Estate.

Over in the West End, the story is marginally less gloomy: vacancy rates there have increased to 6.7%, up from 6.1% the first quarter, according to NB Real Estate. Take-up in the second quarter fell by 16% compared to the previous quarter.