Global real estate services firm Jones Lang LaSalle has predicted that developers may have to upgrade B standard London office space to address the current shortage of quality A grade space.
This should help to meet customer demand without resorting to developing costly new builds during the economic crisis.Jones Lang LaSalle said the credit crunch stopped speculative development in its tracks. Dan Burn, head of its City Agency said: “There is now an imminent supply gap of Grade A office product in London. If the market does not respond, this shortage is likely to become very severe by 2011″.
He continued: “Upgrading Grade B product to Grade A standard seems a logical, relatively low risk opportunity to bridge this supply gap before new build developments reach completion”.
Within the real estate industry grade A offices are usually prestigious new builds or recently refurbished properties with modern facilities. Grade B office spaces are of a lower standard but still have adequate facilities and are maintained to a good level. The rent levels for these offices is lower because of the less than prime location of B grade space.
Grade B office space supply has increased above 130 per cent since 2007 but over the last six months grade A supply has decreased by 25 per cent.
Burn said: “We expect to see more developers pursue an upgrading strategy in 2010 and 2011. This will erode some of the Grade B supply in the market”.