In regards to London offices, they have had a dramatic drop in demand. Financial institutions were the majority in demand for office space supplied in London. Financial institutions have been hit hardest, from the restriction of credit, and so they have had to reduce their sizes i. e. reduce costs through redundancies and less property occupation, which led to a ‘flooding’ of available office space in the sector. This ‘flooding’ of the market has increased yields making investors reduce rents.
Although, recent outcome have shown us the UK economy is stabilising. Two factors which reiterate this are; FTSE 100 has grown to 5100 base points which is what it was at its highest peak in late 2007 and residential housing prices have begun to rise. CBRE report 2009 Q3; tells us London office space take up has risen to 2. 7 million sqft, rents are starting to stabilise, yields are beginning to reduce, and investment in central London rose to i?? 2. 7 billion – close to the figure in 2007.
All of these factors are positives towards the office sector improvement. As predicted by CBRE in 2008, foreign investment will increase due to a weaker pound and low values for property, which is what has happened – as it is currently leading the investment turnover this year. Knight Frank report Q3 of 2009 tells us demand for central London offices has continued to improve due a weak pound, signs of recovery in the occupier market have been improving investor confidence.
Also prime yields have hardened which is a very important factor for the office sector as this means office values are beginning to stabilise/increase. Future prospects with the commercial property sector The global economy’s future seems to be stable and growth is starting to appear in USA, France and Germany. Growing economies mean growth in many businesses which lead to increase demand for employment thus partly demand for office space.
Predictions of the UK economy have been fairly negative in terms of economic recovery although from present results such as ftse100 and house prices these claims are looking less valid. The King Sturdge report of 2009 disagrees it argues rents are unlikely to rise until 2011, it mentions yields are stabilising but investor caution continues. It also states rents are set to fall further. But its predictions have not matched recent reality which shows earlier stability than expected and there are signs of growth in the some boroughs of London.
In the short term (next 5 years) the commercial office sector in London has been predicted to grow at the start of 2010 from the Q3 2009 reports. This is from the predictions that yields will reduce, meaning office values will begin to rise. This prediction is based upon UK economy strengthening hence the office sector will begin to be attractive to investors, as previous market trends have shown us capital value and rent rise faster than many other property types (residential/leisure/public) – during economic growth.
Although the market is still oversupplied and is seen to be until the start of 2011, as previous empty offices will begin to be re-let. Harris, 2005, believes the changing nature of businesses is requiring greater flexibility in the use of space and time, allowing for rapid response to operational needs. Harris also goes onto say; the location of offices has become far less constrained as a result of information technologies – enabling work to take place in wider variety of locations.
This still means there is and will be demand for offices but offices of a richer texture of office environments. Meaning speculative development will have to take into account offices of a high quality and functionality, resulting in higher costs and probably lower profit. Office space occupation would be higher if was not for the car, the car encourages decentralisation of employment. Future of London is unknown as technology increases to improve at a fast rate, which could lead to decentralisation of the workplace.