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News Release

London

Q1 2011 Office take-up in Western Corridor region increases 48% year-on-year

Take-up more evenly spread between in-town and out-of-town locations according to Jones Lang LaSalle’s latest research


London, 18th April 2011Jones Lang LaSalle reports a positive start to the office leasing market across the Western Corridor  region with a 48% year-on-year increase in leasing volumes.  Over 393,000 sq ft of office space was let in the first quarter of this year (Q1 2011) which was broadly in line with the previous quarter. Take-up activity in the Western Corridor region was driven by a number of significant office deals including Adobe Systems taking 49,500 sq ft at Market House, Maidenhead and the acquisition by BP of 36,400 sq ft at 5 The Square, Stockley Park.

Despite the clear improvement in leasing volumes, take-up in Q1 2011 has however fallen short of the 10 year average (down 36%); activity was once again largely driven by lease events rather than any single growth sector.  Jones Lang LaSalle’s research suggests further consolidation, particularly within the Pharmaceutical and ITT sectors, which will continue to drive some leasing activity over the forthcoming year. 
 
Deals have continued to be driven by the Manufacturing and Service sectors, which accounted for 77% of take-up in the first quarter. 

James Finnis, head of Jones Lang LaSalle’s National Offices team, said: “Contrary to the previous quarter's take-up, leasing activity was more evenly spread between town centres and out-of-town locations, representing 52% and 48% of Q1 take-up respectively.  Occupiers continued to favour Grade A space, with many taking advantage of the opportunity to upgrade.  Grade A take-up accounted for over 245,000 sq ft – nearly two thirds compared with an average of nearer half.”

Jones Lang LaSalle reports that occupier demand for office space across the region increased slightly over Q1 to reach 2.2 million sq ft.

James Finnis added: “Despite positive signs, demand remains lower compared with previous years, and given the outlook for the economy remains mixed, we expect occupiers to remain cautious.  Whilst there are some examples of occupiers taking the opportunity to upgrade, in the absence of significant economic growth we forecast that total take-up this year will be at similar levels to 2010 at just over 2 million sq ft.”

Overall supply of offices in the Western Corridor region increased slightly in Q1, to 12.5 million sq ft, reflecting a vacancy rate of 14.6%.  This increase was driven by a rise of 4% in the level of Grade B supply. In contrast, Grade A vacancy rates remained stable at just 6.0% across the Western Corridor with the supply of Grade A space in the West London submarket even more constrained, with vacancy rates falling to just 3.1% over the first quarter.

James Finnis concluded: “Only 130,000 sq ft of office is under construction speculatively, none of which is scheduled to complete this year. Developers and investors are becoming aware of this historically low level of stock replacement and there are signs of a development market re-emerging with sites and refurbishment opportunities beginning to trade.  The lack of speculative development funding will mean that the pipeline will remain severely limited and as Grade A supply reduces further we will see more pre-lets.

“Conversely, we expect further influxes of Grade B space as a result of public sector cutbacks which could well drive interest in the conversion of secondary stock to alternative uses such as residential, as supported by announcements made in the Chancellor’s recent Budget.”

Across the Western Corridor market, rents increased 0.8% over the quarter driven by upward pressure in Chiswick and Windsor.  Rents in the remaining key centres were stable compared with the previous quarter.  Incentives were also stable at up to 30 months rent free on a 10-year lease in the Thames Valley and 24 months in West London.  Jones Lang LaSalle expects annual growth of 3.6% taking the average prime rent for the region to around £28.42 by the end of this year.
 
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Notes to Editors:
The Western Corridor region includes the submarkets of West London and the Thames Valley. Take up in West London was 86,855 sq ft and in Thames Valley 306,193 sq ft in Q1 2011.