London office space in for tricky 2011 says report

Office supply in London is in for a tougher 2011 according to a report.

It is expected that yields relating to London’s commercial office space will fall during 2011 due to the limited spending of offshore firms and limited office space available.

Approximately 5.5 million square feet of office space is forecast to be taken up by companies in 2011 in both the City and West End office sites.

These are the findings of a report released last week by Savills which primarily supports claims made by the estate agents Knight Frank at the start of February.

Savills predict that lease expiries will become the primary reason for the freeing up of commercial property office space in 2011.

The report is also confident in its belief that office space transactions will total over six million square feet in 2012, a 500,000 square foot increase on expected 2011 levels.

During 2009 the prime leasing deals were driven by corporations taking out large amounts of office space in excess of 100,000 square feet, while in 2011 office transactions are expected to be driven by firms taking on smaller offices of 50,000 square feet or less.

The City markets are still expected to be dominated by lawyers and banking sectors while the business services market still looks towards the West End sites.

For the first time in 11 years, the West End saw more office transactions taking place than the City due in part to the lack of new office space available in the City through delayed projects.

Savills’ head of commercial research Matt Oakley said: “There is a notable shortage of units greater than 50,000 square feet in the City. In the West End undersupply in particular of Grade A space is ubiquitous.

“However fringe locations that do have some stock such as Paddington and Kings Cross will see a rise in demand.  Meanwhile austerity measures are set to provide the prudent landlord with an opportunity to redevelop public sector space that has been disposed of,” he said.