London's office vacancy rates hit 5-year low

Office vacancy rates in London's West End and City of London districts are now at their lowest level for at least five years, according to global real estate adviser Cushman & Wakefield. Vacancy rates in the West End stand at 4.1% and in the City of London at 6.2%. The figures are good news for developers with major office schemes and are likely to encourage further speculative development to take advantage of the increased demand for prime space.

In the West End, prime rents are now touching £117 sq ft (up from £110 sq ft in Q1) and active demand for office space is up almost 20% on Q1 at 6.2 m sq ft (with 'only' 2.5 m sq ft of new space in the development pipeline). The outlook here remains good, the report said.

Options for occupiers are slim in the traditional cores of Mayfair and St James' which means more peripheral areas such as Victoria and Paddington will likely benefit from this increased demand. The financial sector is dominating letting activity - accounting for 24% of the 1.9 million sq ft of space taken in the West End so far this year and also accounting for 17% of the active demand of 6.2 million sq ft. 'There is no sign at the moment of the West End market stalling. All of the indicators are positive and the only thing that may effect the take up of office space is simply the relative lack of new development currently available', Guy Taylor, head of West End offices at C&W said.

Prime office rents in the core City of London market have risen 8% since the start of 2007 and are up 18% year-on-year to stand at £65 sq ft. Combined with a vacancy rate across the City & Docklands that has fallen almost 20% so far this year, and active demand up 20% to 7 million sq ft since the start of the year, the market is experiencing a period of sustained and significant growth.

Whilst vacancy rates have dropped, total demand levels have correspondingly soared by 40% in the year to date, with take up of office space standing at 2.9 million sq ft. These conditions have encouraged developers to move ahead confidently with major new schemes. There is currently 6.4 million sq ft under construction or being refurbished which is due for delivery by the end of 2009. There is also a further 8 million sq ft which has planning permission or where demolition has already started, according to the report.