There is already 5.7m sq ft of office space sitting empty in the City of London, a rise of 12% in the third quarter, putting the vacancy rate at 5.5%. This is below the long-term average, but the agent predicts this will more than double by 2010 as the City copes with job losses and completion of more speculative development.
Rents are predicted to slip to about £47.50 a sq ft, from a peak of more than £65 last year and from about £60 at the moment. The agent has added a further 12 months to its recovery forecast, suggesting the market is unlikely to see rental growth until 2011.
A report from rival CB Richard Ellis today predicts a total of 6.5m sq ft of new development, which will send the availability rate to 13% in the City.
Peter Damesick of CB Richard Ellis says: 'Our main forecast for prime office rents is to decline for the next two years, falling by 22% from current to the end of 2010 and then recovering to regain their end-2007 level by 2013.” He said there were “substantial downside risks to this scenario', depending on the extent of the fall in City jobs and strength of a rebound.