Office take-up in the Western Corridor has picked up significantly after record lows in the first quarter and is set to reach 2m sq ft by the end of 2010.
According to Jones Lang LaSalle’s Western Corridor Market Update Autumn 2010, unveiled at a breakfast at its Hanover Square offices this morning, take-up increased 65% over the second quarter to come in at a total of 702,000 sq ft in the first half – a figure up 14% year-on-year.
The Western Corridor takes in the West London and Thames Valley office markets.
James Finnis, head of National Office Agency at JLL, said that a series of deals in solicitors’ hands meant that there was already 1.4m sq ft of take-up due this year, up from 1.264m sq ft in the whole of 2009.
“2010 is already in a better place than last year,” Finnis added.
Nevertheless take-up remains 41% less than the five-year average for H1.
JLL predicts that take-up will pick up over 2011, bringing it closer to the five-year annual average of 2.5m sq ft.
Activity continues to be driven by the manufacturing and service sectors, which accounted for 54% of take-up in the first half.
Demand fell by 12% in H1 – when compared to the end of 2009 – and continues to be driven by lease events, with JLL reporting that there is around 12m sq ft of such activity due in the next three years.
Supply lifted 8% to 12.9m sq ft, exceeding the peak in 2004 by 11%.
Development has ground to a halt with just 144,600 sq ft under construction speculatively, 93% less than Q2 2008.
Overall vacancy rates reached 15%, with grade A at 7%.
Prime rents across the Western Corridor fell 0.6% over the second quarter to an average of £25.34 per sq ft – a fall of 13% from their peak in Q3 2008.
Softening of prime rents was seen in the most oversupplied centres, including Bracknell (-5.3%) and Slough (-10%), but there were several pockets of undersupply which recorded rental growth, such as the town centres of Reading (+1.8%) and Maidenhead (+5.8%).
JLL is predicting “sustained but not exceptional growth of between 3% and 4% until 2014, with outperformance in the West London boroughs, particularly Chiswick, Hammersmith and Staines ”.
Finnis said: “The Western Corridor is well overdue a period of sustained rental growth.”
Investment volumes lifted in comparison with the first half of 2009, up by 4%, with £162m traded.
Yields have stabilised at 6.5% in West London and came in 50 bps to 6.5% in the Thames Valley.
Prime yields stabilised at 6.50% in both the Thames Valley and West London markets.
Mark Wilson, director, joint head of national office investment, said JLL’s house advice was “be brave and target shorter-let, town centre office buildings for investment”, particularly in Hammersmith, Staines, Uxbridge, Chiswick and Maidenhead town centres.
paul.norman@estatesgazette.com
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