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News Release

London

Jones Lang LaSalle predictions for Western Corridor Office market


London, 18th June 2009 – In readiness for the publication of their Autumn 2009 Western Corridor Report, Jones Lang LaSalle have analysed the market and forecast that up to 1.4m sq ft of space could be released by tenants in the Western Corridor by the end of 2010.

James Finnis, Director and Head of the South East Disposals Team at Jones Lang LaSalle said “The effects of the recession are increasingly evident in the Western Corridor; occupiers are under cost pressure and reduction in headcount is directly resulting in a need to reduce their property overheads.  In addition we have seen a number of corporate mergers and acquisitions, the resulting consolidation will result in space being released in the Western Corridor. 

It is important to quantify and understand the quality of the potential space which could be released to the market as this could have a real impact on total supply and rents.  At this stage it is not clear, how much of this 1.4 million sq ft will be formally released to the market and it is probable that we will see a similar phenomenon witnessed after the Dotcom crash in 2002/2003 where there was a large pool of Grey Space: space which is promoted as potentially available but there is no certainty of its availability as the tenant may reoccupy.

Of this 1.4m sq ft more than 50% is Grade B stock; however virtually all of the space is fully fitted and could provide “plug and play” accommodation.  In the current market where capital to fit out is limited this fitted space will be attractive to occupiers, as will the aggressive financial deals likely to be on offer from tenants under cost pressure and keen to get their space let and generating some form of income.  In certain cases with short leases remaining these companies with unwanted space will accept rates and service charge payment by incoming tenants with no recovery of rent in order to get the property off their books.

Comparing this potential tenant release space with the period after the Dotcom crash in 2002/2003 is useful. By the end of 2003, 3.55 million sq ft of tenant released space was available. At the end of Q1 2009 2.6 million sq ft of total supply is occupier controlled space. If 1 million sq ft of the potential 1.4 million sq ft does return to the market, then it will be broadly comparable with the 2003 picture.  Looking at it another way if 1m sq ft is released then this would equate to approximately 5 months of supply based on average five year take-up figures.

A key point today is that a much lower proportion of this tenant release space will be Grade A supply. In 2003 much of the space released was “brand new” never occupied.  This time much of the space is fitted and will be offered to the market on cost effective packages.  On this basis it is probable that this pool of space will let faster than in 2003.