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News Release

London

Jones Lang LaSalle publishes Western Corridor office market highlights for Q1 2009


London, 14th April 2009 – According to Jones Lang LaSalle, Western Corridor office take-up was subdued in the first quarter of 2009 with just over 290,000 sq ft let, 53% below the five-year quarterly average.  The Public Administration sector, particularly those engaged in healthcare, was notably active, accounting for 35% of total take-up, largely due to significant deals to BUPA and the Hounslow Primary Care Trust at Pine Trees, Staines and Sovereign Court, Hounslow, respectively. 

Supply continued to increase – up 10% on the end of 2008 - with overall vacancy rates finishing the quarter at 12.3% and Grade A at 6.4%.  More than 320,000 sq ft of space completed speculatively, most notably at Capitol, Bracknell, where 180,000 sq ft was delivered, resulting in an upward pressure on supply.  Vacancy rates in the Thames Valley now stand at just over 16%, with Grade A at 7.9%, while in West London they are 8.7% and 4.9%, respectively.
 
There is 955,000 sq ft of space under construction speculatively in the Western Corridor, of which 885,000 sq ft is scheduled to complete this year.  This is only equivalent to 1.1% of existing stock and consequently, will not strongly inflate vacancy rates over the next 12 months.  Beyond 2009, there is little development due to be delivered and we do not expect any significant speculative starts within the next 12-18 months.
 
Named demand increased this quarter to 2.3 million sq ft, reflecting a rise of 17%.  This is in line with the increased level of viewings seen this quarter – we have recorded 14% more viewings in Q1 2009 than in Q4 2008.  This mirrors a similar up tick in demand and viewings seen in Central London, and while increased interest from tenants is positive, it is likely that some of these tenants are looking to the market in order to be able to negotiate more favourable terms at their existing premises.  We do not expect rising demand to be a trend of 2009, however, and it is important to note that in comparison with recent years, this demand figure is low.

Overall prime rents fell 4% in Q1, reflecting a year-on-year fall of 5.3%.  There were significant variations between centres, however.  Most affected were Maidenhead, Uxbridge and Heathrow, which all registered falls of more than 7% over the last three months while rents in centres with less available prime stock, such as Reading, Hammersmith and Chiswick, showed some resilience falling slightly or not at all.

Investment volumes fell 25% in comparison with the final quarter of 2008 and were 75% below the equivalent period last year.  In total only £29.4 million was traded across 4 deals.  There is demand in this market for prime stock, however, and it is the lack of good quality product, which is causing investment volumes to remain subdued.  Prime yields moved out 25 basis points in January but now appear to have stabilised, ending the quarter at 7.50% in West London and 7.75% in the Thames Valley.  Yields for secondary stock continue to move out.

Commenting on the occupational statistics James Finnis Head of South East Disposals at Jones Lang LaSalle said; “The Q1 take-up stats reflect occupier’s lack of confidence.  At the end of 2008 there was very limited active demand and inspection numbers fell rapidly.  This has fed through to very poor take-up figures.  This lack of confidence and desire to save capital has manifested in a rise in lease re-gears with occupiers testing the market to establish what is available and then agreeing a new lease with their existing landlord on advantageous terms.   Whilst this feature of the market helps to ensure that second hand stock does not return to the market it is leading to stagnation.”

James added; “Whilst supply is increasing, Grade A supply is generally limited.  We believe that this lack of Grade A space will act as a brake to rental falls in the Western Corridor.  The increase in inspections over the last months, in conjunction with the deals currently in solicitor’s hands, points to better take up figures for Q2 2009 but the continued economic uncertainty means that 2009 will be a tough year.”