RICS’s UK Commercial Property Survey has revealed that office vacancy rates in London have dropped for the first time in 2 years.
Office rents have risen as available space is being snapped up, marking the first step of the recovery for the commercial property market. Demand for real estate soared in the fourth quarter of 2009, with 14% more chartered surveyors reporting an increase in take-ups from tenants. This reflects an increase from 8% in the third quarter. Many property agents believe this is the latest sign that office rents in the capital have bottomed out and think this could be the start of a new-found optimism for the UK market.
RICS have predicted that office rents in London will recover more quickly than elsewhere in the UK, where rents will continue to decline in the coming months.
But it wasn’t only the office space market that improved in the last quarter. Industrial properties also benefited from a rise in take-ups but interest for retail space still remains luke warm.
“To be sustained, the rapid rise in capital values in the London market needs to be supported by further rental increases particularly as prime yields are rapidly approaching financing costs,” said Oliver Gilmartin, RICS Senior Economist. “The reluctance of banks to lend to developers has clearly added some support to rents in London as available space is no longer rising outside the retail sector. Significantly, development starts continue to fall back.”
With only a handful of developments set for completion in the next couple of years, it seems the demand for London office space is set to get even more competitive in the next 18 months.