Can speculative office development keep up with the growth rate in London?

The UK’s largest real estate investment trust, Land Securities Group PLC (LAND) advised in a recent report of theirs that the vacancy rates in their properties have not changed since the beginning of the recession in 2008. If anything their vacancy rates have dropped significantly during the past 5 years. 

Land Securities own a majority of office space in Victoria as well other central London locations. The developments on Victoria Street have been headed by Land Securities, such as 123 Victoria Street and Cardinal Place which have assisted in transforming and brightening up the area. 

The Vacancy rate was at 2 per cent in the quarter ending on June 30th. We are seeing the supply of the UK’s commercial property market improve slowly and hopefully there will be an increase of stock in the coming years, especially as lenders become more at ease with lending money and more willing to provide credit according to the Investment Property Databank Ltd, one of the leading research firms within the real estate market. Whilst according to Earnst & Young’s Item Club, the UK’s economic growth forecast for this year rose from 0.6 per cent in April to 1.1 per cent this July. Although there is demand for commercial office space in London, there is also demand for residential and Land Securities received approval from the local government to convert office space in Victoria to a residential block, creating 206 flats but not assisting in solving the shortage of office space in Victoria.

This sudden growth has seen currently a rise in demand for office space that the current market cannot keep up with and hence the sudden drop in vacancy rates. “So whilst there is speculative development ahead, we will see the market become suddenly very tight until development is actually available and once available, the question is will there be enough” as said by Christina Weguelin of Morgan Pryce.   

This news article comes from Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.