In the second quarter, availability climbed to 9.4m sq ft – getting on for double the level recorded at the same time last year.
The spike has been driven by the release of surplus space on to the market, especially in the City, by large firms such as RBS, Deutsche Bank and Nabarro. High availability of secondhand space has also driven up vacancy rates, which exceeded 5% for the first time in five years at 5.2%.
However, there remains a shortage of new space and competition for the best-quality stock remains fierce. Guy Grantham, director of research and forecasting at Colliers, says a “two-tier market is firmly in place in London” with availability of grade-A space at “exceptionally low levels” and secondhand space availability rapidly increasing.
“The shortage of brand-new supply is creating competition for the best space and helping to reinforce headline rents,” he says. “In contrast, average rents are coming under increased downward pressure as secondhand availability continues to rise. One the most keenly watched trends in the London office market is the rise of the serviced office, which offers much-needed flexibility. “Occupiers are increasingly looking at two-year timelines, specifically related to the initial EU negotiation timeline,” says Grantham.
However, the growth of serviced offices is having a negative knock-on effect on demand for small traditional offices, notes Colliers.
In the West End, where Colliers expects supply shortages for larger prime offices to become more acute as 2017 progresses, availability of small units is on the up. Availability of units below 5,000 sq ft rose by 17% quarter on quarter to 680,000 sq ft in Q2. “The prevalence of serviced office space, particularly at the smaller end of the market, means greater competition and hence choice for occupiers,” concludes Colliers.