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Say Jones Lang LaSalle in latest report
London, 30th January 2012 – Despite a strong last six months of 2011, which took annual take-up to 1.8 million sq ft in the Western Corridor, leasing volumes were 14% down on the level achieved in 2010 and 18% below the five-year average of 2.2 million sq ft. say Jones Lang LaSalle in their latest Offices trends report.
The Manufacturing sector dominated take-up during 2011 accounting for 49% of all floorspace transacted with key deals dominated by the Pharmaceuticals and Oil and Gas sub-sectors including Astellas (100,150 sq ft) Saipem (93,000 sq ft) and BP (70,000 sq ft). The Service sector comprised 34% of total take-up followed by the Public Sector at 13%. While the Western Corridor remains relatively unexposed to the Public Sector, the health and education sub-sectors were particularly active in the region in 2011.
Looking ahead to 2012, occupier demand has improved year-on-year with 2.7 million sq ft of active named requirements in the market place at end 2011, up 30% on 12 months earlier. Demand is boosted by large scale requirements with 18 active enquiries for space over 50,000 sq ft equating to 1.6 million sq ft of space, up 27% on the same period last year.
James Finnis, Head of South East Office Agency commented: “Take-up levels in the Western Corridor during 2011 remained subdued as occupiers continued to exercise caution – opting to re-gear leases rather than relocate. We see take-up levels moderately increasing in 2012 driven by large requirements opportunistically acquiring buildings where; a creative financial package can be created to enable a zero cost move, the business is going through a corporate change ie merger/ acquisition/consolidation or where physical obsolescence of the existing building is forcing a relocation.”
In line with take-up trends, demand is led by the Manufacturing and Service sectors although, in a reversal of market share, the majority of requirements are coming from the Service sector (48%) followed by manufacturing (35%). Service sector demand is led by the TMTs with large scale requirements from the likes of RIM and Huawei. Manufacturing demand is more diverse and includes engineering, food, pharmaceuticals and computer hardware sub-sectors; significant requirements include Bosch, Hasbro and NEC.
Overall supply at year-end stood at 12.0 million sq ft, just marginally down on the level at end 2010 and reflecting an overall vacancy rate of 13.9%. The level of Grade A supply has continued to be eroded over the course of 2011 with second hand Grade B space coming on to the market balancing out overall supply levels.
The Grade A vacancy rate for the Western Corridor as a whole stood at 5.6% at end-2011, compared to 6.0% at end-2010. There continues to be considerable variation across the region with the Grade A vacancy rate for the Thames Valley (8.5%) more than three times the West London rate, with the overall vacancy rate for the Thames Valley remaining very high at 21.4%. At end-Q4 there was 639,600 sq ft of speculative space under construction across the Western Corridor, with 452,650 sq ft due to complete during 2012. Following demand patterns, the majority of activity is focused on West London with schemes on site in Chiswick, Weybridge, Uxbridge and Richmond. In addition, further reflecting developer confidence in the West London market, Hammersmith Grove South (107,000 sq ft) started on site in January 2012 with the scheme due to complete in early 2013.
Finnis further commented: “Grade A space continues to be the focus for occupier take-up – efficiencies and therefore costs savings can be driven in the best space. However, the development pipeline is not replacing the space being acquired particularly in the West London market. This imbalance of supply and demand is feeding through into rental growth in key locations and this will drive further development and refurbishment starts.”
Across the Western Corridor, rents have increased on average by 4.7% over the past 12 months and while they remain stable in many locations, the markets behind the growth include Chiswick, Hammersmith, Slough, Staines and Windsor. Prime rents in Chiswick increased by 18% over the course of 2011 while rents in Hammersmith rose by 7%. Incentives remain at 30 months rent free on a 10 year lease in the Thames Valley and 24 months in West London. Looking ahead we expect further rental growth in 2012, predominantly in the West London markets such as Hammersmith, and an overall reduction in incentive packages.
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Notes to editors:
1. When referring to manufacturing, we are including the pharmaceutical and engineering sub-sectors
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