London Office Market in 2008
March 1st, 2008 | by Simon Rattray |The performance of the London serviced office market is likely to be unbalanced, and also unpredictable in 2008.
Overall, vacancy rates are likely to continue to rise as companies scale back their expansion plans in the face of uncertain economic times. This will be most acutely felt in the financial institutions who will bear the brunt of the of the credit crunch and lack of liquidity. In fact there could be, according to some estimates, up to 20,000 jobs lost in the next two years in London financial institutions. That is a substantial amount of previously occupied office space.
Much of the debate is around how high the office vacancy rate will climb. It was nearly 14% during the last down turn in the market in 2003/4, but it could be argued that it is unlikely to scale those heights again. Luckily there does not seem to be the threat of oversupply which contributed to the high vacancy rate last time around. Developers appear to have been more cautious and have not embarked on massive new schemes at the twilight of the boom. However it can be said that large scale lets are likely to recede in the coming months meaning some developers with large scale schemes may be getting the jitters.
This nervousness is unlikely to be felt from landlords in the West End however, who look much more likely to withstand the impending uncertainty. With few new developments in the offing and continued demand from an eclectic mix of clients the vacancy rate is likely remain below 5%, even dropping in 2009. Demand will continue to be fueled by fund managers of private equity firms for whom a prestigious location is of the utmost importance.
Compare this with the problem that the City faces of having a majority of tenants from financial institutions. The consequence of is that the lack of diversity means that the office market is badly exposed to the effects of the credit crunch. Although rental values may just hold up in the City, there will not be the growth that the West end is likely to enjoy.
Agents are, unsurprisingly perhaps, optimistic about the year ahead. Only time will tell if this optimism is well placed.
What do you think? Please leave us your comments…
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