Healthy Q1 take-up squeezes City supply

The City of London is experiencing its lowest level of office supply since 2001, according to the latest Central London Market report issued by international advisor Jones Lang LaSalle. The opening three months of 2007 saw almost 92,903 m² of existing space taken off the market, with a further 167,225 m² now under offer.

Overall vacancy rates have decreased from 7.5% to 6.1%, with Grade A vacancy declining from 3.8% to 3.4%, and strengthening demand will lead to more rental growth this year. The banking and finance sector continues to dominate demand for Grade A space and was up by 34% in the first quarter.

Neil Prime, head of office agency at Jones Lang LaSalle, said: 'The City is now experiencing real selective shortages, particularly for larger units of immediately available office accommodation. In fact there are no Grade A units available of greater than 100,000 sq ft (9,290 m2). Given this lack of immediately available accommodation, we expect to see more occupiers considering pre-letting as a way of satisfying their requirements.' He continued: 'We believe that this increase in demand for pre-lets could result in more than 2 million sq ft of speculative development scheduled for completion between now and the end of 2009 not being delivered to the marketplace. The developers have read the cycle well and are delivering their product at a time of strengthening demand.'

The City investment market saw almost £2.8 bn (EUR 4.1 bn) transacted in Q1 - the second highest quarter on record. Overall demand is still 16% above Q1 2006 and coupled with total supply falling by 4% and Grade A vacancy rates of 1.9%. The West End investment market traded £1.42 bn - its largest first quarter on record. UK institutions were responsible for 39% of all purchases in the first quarter. Direct Middle Eastern purchases accounted for 14%, but Middle Eastern-backed money was behind 32% of all transactions.