A new report from property experts Savills has revealed a notable shortage of available office units in central business districts (CBDs) throughout Europe.
While the study discovered the continent as a whole is suffering as a result of the lack of available property, there were notable concerns for levels of supply in London.
According to the end-year outlook from Savills, London City and London West End both saw available office units down on the previous year.
The report revealed that tenant demand in this area of the UK capital rebounded strongly in the second half of 2013. This is especially true among tenants looking for larger properties of 100,000 sq ft or more.
Savills said that 2013 saw a “continuation of the trend of more footloose tenant requirements”, as tenants who traditionally locate in the West End have chosen to relocate to the City fringes in order to take advantage of operational and cost benefits.
Vacancy rates fell in the City area during the second half of the year, from 10.4 per cent in June to 8.3 per cent in December.
This has put upwards pressure on rental rates, with an average increase of 20 per cent in the last year. The mean rental price stood at £64.45/sq ft in the final quarter of 2013.
Savills did expect a slight fall in take-up during 2014, but this is due to the record level seen in the second half of 2013. The seven million sq ft of property rented out is the highest since 2000.
However, the vacancy rate is expected to fall even further during 2014, causing further increases in rental rates in prime areas.
Savills has predicted a 3.7 per cent per annum growth in the London City market over the coming five years.
London West End
The total level of take-up in this area during 2013 stood at four million sq ft, which is above the usual trend.
It also marks a one million sq ft increase on what was achieved during 2012. This suggests business confidence in the area is improving.
The technology sector was the most dominant business in this region, taking up 26 per cent of the total leased space.
However, the data is perhaps a little off balance due to the acquisition of 800,000 sq ft of space by Google in the Kings Cross area.
The banking sector, a traditionally important high rent payer in the West End, represented just one per cent of rental activity.
There was a fall in availability in the area too, with the current rate of 3.8 per cent down from the four per cent seen in the middle of 2013.
This has resulted in Grade A rents increasing, with the top received rate standing at £120/sq ft. Average rent over the year settled at £99.85/sq ft.
Savills predicts that rental growth of six per cent per annum will be seen in the West End in the next five years, with low vacancy levels offering support to this pattern.