The latest CBI and PwC quarterly survey indicates growth in the financial services industry and there has been a corresponding increase in demand for commercial property, particularly in London, which is only expected to intensify. Yet without sufficient availability to keep pace with this demand the owners and managers of UK commercial property have found that they can be more ‘selective’ in their choice of tenant.
An imminent increase in renting costs is the prognosis of Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (RICS). Addressing the current disparity of market need and availability, Rubinsohn explains that ‘even in this relatively subdued economic climate, [commercial property] is not coming on tap at a fast enough rate to keep pace with demand, which is a legacy of the sharp curtailment in development’ – a curtailment initiated following the global downturn and the resulting caution exercised by developers. And, given the likely turnaround of any new commercial property projects, should this increase in demand continue it is likely to exacerbate the issue of rising rent. Even the revival of several commercial developments in London is perhaps not sufficient to offset the situation.
The divergence of supply and demand has been further highlighted by Colliers International figures published earlier this month. These indicate a thirty-month low in Central London availability, with the net stock absorption of office space in this region reaching 1.8 million sq ft over the last six months. As a consequence businesses may begin to search for premises beyond the capital in order to take advantage of the comparatively stagnant market, and perhaps in turn find cheaper commercial property options.
Across the 2011 CBRE monthly indexes Central London offices have proved to be the overall strongest performing commercial property subsector, consistently outperforming other regions of the UK. Therefore a distribution of resources beyond the city is possibly the key to addressing both the saturation of the London market and the comparative drought elsewhere.
