6 January 2012
Property owners and developers should brace themselves for a tough 2012 rental market as occupiers seek the best deals amid a shortage of good office stock.
“This will not be a vintage year for rental growth, especially in the difficult early months,” said Andrew Burrell, a director of research at property developer Jones Lang LaSalle (JLL), in its property predictions report for 2012.
“But the shortage of quality supply should continue to underpin headline rents in prime markets, albeit with incentives remaining generous. The rate of increase is set to moderate in all sectors, with prime offices, notably those in central London, seeing the most marked slowdown in 2012,” he said.
“Average rents have not seen as strong a recovery as prime thus far, but also show modest year-on-year increases. Overall commercial sectors show much greater rental stability than during the global downturn of 2008-09.”
Overall vacancy rates will barely change between 2011 and 2012, although this may mask increases in the first half of the year and some decreases in the last half, according to the report.
JLL predicts the London vacancy rate to end the year at 6.1 per cent and the UK vacancy rate to be 11.5 per cent, with the highest vacancy rate in Birmingham and the Thames Valley. “Grade A office supply will be far more restricted and we expect London Grade A vacancy rates of 3.2 per cent by the end of the year, with much sharper erosion in 2013.”
Across the UK, average rents for non-prime properties will grow by only 1.7 per cent this year, with London leading the way at 3.5 per cent in the West End and 3 per cent in the City.
For prime properties, JLL is forecasting “very modest growth” in London of 4.5 per cent in the City, to around £57.50 per square foot. In the West End, the prediction is for zero growth, keeping the price at around £100 per square foot.
Outside central London, the hotspots are Hammersmith, Edinburgh and Glasgow. Any growth will be supply driven, not demand driven, the report noted.
This obsolescence factor will increase in importance for occupiers when they choose accommodation. This is due to three principal drivers: legislation, office worker behaviour and technology.
By April 2018 a minimum energy efficiency standard will be required for all rented business and residential premises, potentially deeming any property “un-tradable” if standards are not met. Letting of any premises below this standard - believed to be EPC rating E – will be unlawful and result in a fine, according to the report.
Many buildings will gradually become obsolete because of more and more occupiers looking for flexible office space, city centre locations and larger floorplates,
A similar situation has arisen because of occupiers wanting buildings capable of handling greater technology. “Product which is unable to host the necessary kit will become obsolete, as some of the up-front costs required will not make economic sense to implement in older office space.”
JLL said it expects “rapid devaluation as a result of these obsolescence drivers – legislation being the principal one”. This will be felt more keenly after 2012 and “we believe this is a great opportunity for deal makers with refurbishment expertise – and a massive risk for poorly advised holders of older stock”.
Other news for Friday, 6 January 2012
Rental market stagnating, says report
Gas set to transform hospital hygiene
Europa wins Ikea extension
NG Bailey wins atomic site work
Chartwells stays on at Reading
Contracts round-up
FM World Blog: Out with the Old
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