Vacancy rates have risen in every London office market, according to Atisreal’s latest research.
Rates rose from 6.7% in the second quarter to almost 8% by the end of September – the largest rise for two years.
The report also found that the end of the third quarter marked a year’s anniversary of the demise of the Central London offices investment market.
Transactions we re down 90% in the third quarter, following a 57% drop in the second quarter. Provisional information from Property Data indicates that Q3 2008 will be the weakest quarter since the downturn began more than a year ago.
Capital values in the City office market have fallen 27% since July 2007’s peak and 20% in the West End.
Yet the research concludes that developments coming onto market were largely responsible for the rise in void rates. It found that there was an increased take-up in the West End, City, Docklands and Midtown, albeit a long way short of Q3 figures in 2007.
Dan Bayley, head of national lettings and sales at Atisreal, said: ‘Despite Q3 showing take-up increases across Central London, there have been warning bells – namely the financial market turmoil following the collapse of Lehman Brothers and the downward revision of GDP to zero which suggests that the economy is on the edge of a recessionary period.’
Prime rents are now down to £42.50 /sq ft at Canary Wharf with the rest of the market seeing sub-£30 /sq ft.
Bayley said that because Canary Wharf was cheaper than the City and offer ed tenants the opportunity to consolidate in one building, it had always been an alternative market.
‘Though the dust has yet to settle on the banking sector troubles, early observations are that the Docklands market will see a surplus of space come to the market, particularly at Canary Wharf ,' he said.
‘Headline rents don’t vary dramatically at the Wharf, but you could see a dramatic swing in incentive packages.'
The City saw take-up of just less than 1 m sq ft - a rise of 6% on Q2 figures but 32% lower than this time last year.
Just one deal was done above £100 /sq ft in Q3 in the West End: Qatari Diar's lease assignment at 77 Grovesnor St at £120 /sq ft.
But take-up generally increased from 674,000 sq ft in Q2 to 762,455 sq ft in Q3, boosted by the three large Paddington lettings.
Bayley said: ‘We are seeing a flight to value for occupiers in the West End. Schemes that are outside the main core that have previously struggled to let are now finding tenants and more West End occupiers are looking to Midtown for bargains.’
The Midtown market saw activity double in Q3, with take-up at 305,000 sq ft, up from just 127,000 sq ft in the previous quarter.
This market has also seen a ‘flight to value’ with occupiers such as Thomas Cook pulling out of paying £13 5/ sq ft in Mayfair to pay £65 /sq ft in Midtown. Void rates are up to 5% from 3.6% in Q2 .