By Emanuela Barbiroglio

Vacancy rates on the rise in the London office market

London office vacancy rates increased in the first quarter mainly because of the high volume of secondhand space hitting the market, according to data from Colliers International.

Net absorption — the amount of space occupied at the end of a period minus the amount occupied at the start — was also negative in both the City and the West End, by 0.22m sq ft and 0.36m sq ft respectively. The delivery of major new developments, such as the Angel Court Tower, Nova North and Verde, was a contributing factor. However, Colliers believes that the release of secondhand space, much of it vacated by occupiers in favour of new office space, was the prime driver.

“Absorption levels have been reducing because space is being released on to the market at a faster pace than it is being let by occupiers,” says Guy Grantham, director in Colliers International’s research team. “Also there is evidence that some occupiers have been actively reducing property exposure due to relocations to more efficient space, or influenced by wider economic conditions, which means they have been reducing headcount and seeking to sublet existing space.”

Headline rents in the first quarter were largely stable, with only modest falls in a minority of locations.

More generous incentives have helped keep rental levels elevated. Over the past year, rent-free periods for a 10-year lease have moved out from 12 to 15 months to 22 months in the West End and the corresponding figure for the City is slightly higher.

On a more positive note, Colliers estimates that take-up, which fell by 15% last year, rose for the third consecutive quarter to reach a 12-month high at 2.7m sq ft. Some major pre-lets were finalised in the period, including law firm Freshfields taking 250,000 sq ft at Brookfield’s 100 Bishopsgate.

Grantham says he expects occupier demand to “remain steady throughout 2017 and into 2018”. “Occupiers active in the marketplace will continue to benefit from reductions in net effective rents as well as a wider-ranging variety of incentive packages from existing and potential landlords,” he says.

However, some submarkets are expected to significantly outperform others. Take-up is forecast to be well above the 10-year average this year in the City Fringe, Fitzrovia and Covent Garden.