According to figures in the latest report from a leading global property advisor, around 14 million square feet of office space in London is now lying unoccupied. This figure is at its highest since March 2007 and shows an increase in vacancies of 36.5% in the last 12 months alone. The commercial property market is directly tied in to the behaviour of the banking system; with banks like HBOS and the Royal Bank of Scotland now being controlled by the government, the likelihood is that even more unused office space will appear on the market as the Treasury implements its plans to streamline the systems of these major financial institutions.
As the banks seem to be setting the template for other businesses, the immediate future for the London office market from a Landlord's point of view still looks bleak: many corporations are making redundancies and are either down-sizing on their premises, moving out of the capital or, in some of the more extreme cases, declaring themselves insolvent and shutting up shop entirely. For landlords of office space in London, this spells further bad news, but for tenants looking for office space this is fantastic news. With more and more office space in London coming onto the market and less being taken up, empty and unused premises are simply going to cost Landlord's money that, in the present financial climate, they can ill afford to lose. Selling their properties is an unlikely option and, if they do so, it is likely to be at a considerable loss.
For tenants looking to rent office space in London, the news is far better. What was once a market firmly controlled by the landlords, is now a tenant's market, with fantastic opportunities available across the board. In an attempt to court tenants, landlords are trying to ensure that their premises remain unused for as short a time as possible. This means that there has been a sharp drop in rents. According to Commercial Property News, London's rental rates have already taken a cut of around 23% and the figure looks set to increase as the recession bites hard into the banking system and beyond. Coupled with low rents, landlords are also offering substantial rent-free periods. In the West End alone, incentives have tripled in length over the last 12 months.
This current economic situation is offering tenants the opportunity to relocate to more favourable London office space at a fraction of the costs that they would have been facing 6-12 months ago. With the decline in the strength of the pound, London is becoming increasingly popular with international businesses, as it no longer retains the title of the World's Most Expensive Capital, but continues to offer some of the best business links and services across the globe. While these corporations are looking to exploit the downturn and move into top-end London office space for reduced rates, it also leaves the door open for smaller, home-grown businesses to take advantage of the stagnancy of the small and mid-scale markets. Whilst the credit crunch is spelling disaster for many institutions, prospective tenants are seeing a landscape of financial opportunity.
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