Central London Office Market 2008
2008 has been a year of extremes for the Central London office market. Exceptional swings in market activity have been recorded, from the relatively positive signs in the first half of the year, to the spectacular slowdown of the year end.
Central London Market Highlights:
- Lowest take up in over 5 years as levels fall 60% on 2007.
- Available space increases 10% across the Central London
- Market in 2008 to 31.9 million sq ft.
- Available space increases 16% in top four markets in 2008 to 26.6 million sq ft.
- Lease lengths shorten, incidence of break clauses increases.
A Game of Two Halves
It is fair to say, for the global economy, 2008 will be recorded as an annus horribilis. Two notably different themes dominated the two halves of the year. Having coped with the problems of Northern Rock and worries about hidden financial problems highlighted by the Bear Stearns bailout, the focus through the first half of the year was about containing rapidly increasing inflation driven by escalating energy and commodity prices. The fear was stagflation; low growth and rising prices, which saw the Bank of England keep interest rates high despite the demands of those who feared that this could drive growth ever lower.
After the Summer Comes the Fall...of Banks!
After a summer lull, all hell broke loose, triggered by the unsupported collapse of Lehman Brothers, fears of global contagion of financial woes proved well-founded and the banking crisis spread around the world, taking distinguished Banks with it. Hundreds of billions of dollars globally were pumped into the money markets in a co-ordinated government effort to create some degree of liquidity between Banks and to stave off systemic implosion of the entire global banking system. Growth was already forecast to slow but, despite hopes that this was specifically a financial market crisis, the depth of the problem rapidly fed through to the real economy and most of the Western world is now in, or heading into recession. In the UK, monetary reaction has seen the minimum lending rate reduced to its lowest level since records began.
Central London, Further Falls in 2009
Commercial property values in the UK continue to fall. Driven largely by rising yields, further falls are expected in response to the deepening economic downturn, impacting prospects for rental value growth and increasing vacancies. As GDP continues to fall, businesses will continue to fail, consolidate and contract, further impacting demand for commercial office space. However, this market does present opportunities for some occupiers to trade up their office space into locations previously deemed too expensive.
Globally, whilst there is no hiding from the effects of the banking and economic crisis, the old failings of the property valuation process seem to have reappeared. It is only in the UK and Ireland where dramatic re-pricing has been seen. The US and the Netherlands have seen some minor falls but the rest of the "indexed" world seems to be unrealistically preserving valuations. This should work in favour of the UK investment market as activity increases in the face of ever improving value. There is little to persuade anyone that 2009 will be anything other than a very difficult year indeed, assuming the measures taken so far have the desired results. At least the UK property market has shown it can re-price itself to allow investment to continue to support the sector and deal with what ever lies ahead.
