The time taken to let new and refurbished buildings in the City has fallen dramatically over the last 24 months.
New research by Knight Frank has found that almost half of all schemes built in the last two years have achieved 85% occupancy within 12 months of completion. This is a significant increase from the preceding 2-year period, during which only 15% of schemes reached 85% occupancy within 12 months.
Additionally, the time taken to let new space is now significantly below the period covering the peak of the last cycle. In the 24 months to Q3 2008, just 40% of schemes reached 85% occupation within 12 months.
Dan Gaunt, head of City Agency at Knight Frank, observed: “Over the last two years the extent of the potential supply crunch facing the City market has become clearer and tenants have started to acquire space in advance of buildings completing to ensure their property needs are met. Looking ahead, the pipeline is set to become thinner and options will be fewer; we expect to continue to see a number of off-plan pre-lets in the City market as tenants look to secure their future accommodation. Developers will find that their schemes will let at an unprecedented rate as the cycle progresses”.
Patrick Scanlon, partner, central London research at Knight Frank, commented: “There is just 1.7 m sq ft of space speculatively under construction in the City, which equates to less than eight months of take-up even at average levels. The volume of new supply will continue to fall as tenants remove space from the pipeline”.
Supply of offices in the City fell during Q3, now totalling 8.7 m sq ft, which is well below its financial crisis peak of 13.4 m sq ft in Q2 2009. This represents a current vacancy rate of 7.3%, the lowest level since Q3 2007 (around the time queues were found outside branches of Northern Rock bank at the start of the last downturn) and below the long-term average of 9.2%. Take-up of office space in the City was more than 3.0 m sq ft in Q3 2014, the highest since 2000.