Supply shortage and lack of development predicted

According to Savills latest UK office market report, supply continues to fall with the overall vacancy rate dropping to 9.4% from its peak in 2009 of 15.3%. The firm predicts this lack of availability will help compensate for the muted demand as we go into 2012/2013.

Gary Carver, director of office agency in Cardiff, comments: “The supply story is an encouraging one in the Cardiff office market as the lack of new development is predicted to cause grade A supply to drop. This will help offset the weaker occupation demand and help to continue to drive rental growth which rose slightly in 2011 to top rents of £21.50 per sq ft.”

Cambridge and the M25 are additional examples of where the lack of grade A supply has caused rental growth.

Clare Bailey, associate director of Savills research, adds: “In these markets the shortage of grade A stock combined with improving occupier demand have helped rents rise between 10% and 18%. Whilst this isn’t the case for every market this year, we predict that as early as 2013 we will see rental growth more widely across the UK.”

Savills states that in addition to dropping supply and rental growth the lack of development may also cause a rise in refurbished office space across the regions. This has already been witnessed in central London where 73% of stock coming to the market in the next three years is by way of refurbishment.

The firm cautions that demand will remain muted throughout 2012 as corporates continue to act with caution in the face of European economic and political uncertainty. According to Savills, take up in 2011 in all 12 areas covered by this report was down 54% on 2010 but Savills predicts this will start to improve as the economy recovers.

Savills reports that prime yields have stabilised over the last 12 months and the national average now stands at 5.9% which is well down from the peak in March 2009 of 7%.