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Jones Lang LaSalle publishes Autumn Western Corridor Office Market report

Hammersmith and Chiswick under the spotlight

London, 24th September 2009 – Jones Lang LaSalle has published its Autumn Western Corridor Office Market Report. Commenting on the report’s findings in relation to Hammersmith and Chiswick, James Finnis, head of South East Office Disposals at Jones Lang LaSalle said: “There was little activity in Hammersmith and Chiswick over H1 2009.  No space was let in Hammersmith and only 40,230 sq ft across three deals was let in Chiswick, reflecting a fall of 70% in comparison with the latter half of 2008 and 83% below the equivalent period last year.” 

However, Jones Lang LaSalle’s report also shows that in contrast to other centres in the Thames Valley, available space in Hammersmith and Chiswick remained tight, broadly unchanged from the end of 2008.  Overall vacancy rates stood at 5.9% of which Grade A  supply comprised the majority; it accounted for 71% of supply, reflecting a Grade A vacancy rate of 4.2%.

Supply of Grade A has been inflated by relatively strong levels of speculative development over the last 18 months, around half of the current available Grade A space having completed during this period.  Most notable were 165,000 sq ft at Chiswick Park, Building 9, which completed in Q3 2008 and 165,000 sq ft at The Ark in Hammersmith.  There was no space under construction speculatively at the end of June and we do not anticipate any additional speculative starts for at least the next 12 months.

The volume of supply controlled by tenants was limited at quarter end but additions over the remainder of 2009 and 2010 present the most significant threat.  Jones Lang LaSalle has identified almost 300,000 sq ft of space that has the potential to be returned to the market, predominantly due to downsizing and occupiers’ desire to reduce overheads.  If this grey space is released it will increase supply by over 30%.  This increase will come from a low base, relative to other areas within the Western Corridor, however, and as a result Jones Lang LaSalle expects vacancy rates to remain below the market average.

The combination of falling demand and increasing supply has put pressure on rents.  Over the last six months rents fell 6% to £35.00 per sq ft in Hammersmith while in Chiswick they have declined 3% to £33.00 per sq ft.  From their peaks in September 2008, rents have dropped 10% and 11% respectively.  As has been seen across all markets, these headline rents are being supported by significant outward movements in incentives. 

Over the last 12 months, rent-free periods offered on a 10 year term have doubled from 12 to 24 months.  Consequently, according the Jones Lang LaSalle’s report, the market has seen more than 18% decrease in net effective rents in Hammersmith and 20% in Chiswick.

James concluded: “Despite declines, falls in headline rents in London’s West End of up to 35% has caused the rental differential between these markets to narrow significantly.  This has reduced the number of occupiers looking for more cost-efficient space in West London.  The rating re-valuation in 2010, however, may trigger a return to this trend, as rates are anticipated to increase sharply in Central London over the next five years – in some cases this could be by up to 70%.  We expect this to have a significant effect on the West London centres, particularly Chiswick, where rates will remain relatively constant.  The resulting cost differential will make these locations more attractive to Central London occupiers.

“The availability of good quality supply in these markets means that occupiers will be able to secure  competitive terms on Grade A product, and this will place occupiers with upcoming lease events in an interesting dilemma as this ability will need to be balanced by continued uncertainty within the economy and on headcount.”