April 3, 2014
Rush to convert offices as demand for commercial property hits 14 year high
A new report from commercial property specialists Lambert Smith Hampton claims that demand for office space in the UK this year is set to hit its highest level since 2000. The firm claims in its annual Office Market Review that the take-up of office space could reach 30 million sq. ft in 2014, continuing the momentum from the remarkable 33 percent upswing in demand last year. However, the report also notes that, following the introduction of the Government’s new permitted development legislation in 2013, the number of notifications for conversions of office buildings to residential use jumped 500 percent in the first six months. The trend will act as a further constraint on supply and push up rents as businesses seek additional space for expansion or moves to new property at the end of leases although it will also remove obsolete office space in many less desirable business locations.
The report claims that much of the demand for additional office space will be centred on Central London, the Thames Valley and the UK’s major cities including Birmingham, Manchester and Glasgow.
Meanwhile, more than 4 million sq. ft. of office space has now been earmarked for conversion to residential use outside of London. The LSH report claims that this could lead to the immediate creation of over 6,000 new homes.
Commenting on the report, Tony Fisher of Lambert Smith Hampton, said: “The office market has been a major beneficiary of the economic recovery and improving business confidence. Despite a slow start to the year, we expect that demand will reach its highest level for more than a decade as the corporate sector continues to hire new staff and invest for growth. The reduction in activity during Q1 may seem counterintuitive given the positive economic outlook, but quarterly activity has a tendency to oscillate, so it’s important not to read too much into a single set of figures. Fundamentally, the market remains in good shape and on an upward trend in both rents and take-up.
“At the same time, we’re seeing an exponential increase in the number of obsolete office buildings being removed from the market and earmarked for conversion into new homes. Landlords and developers across the country are taking advantage of a temporary relaxation of the planning rules and a strong housing market to transform lower quality space into more profitable uses. In Nottingham city centre, for example, three times more office space was removed for conversion into residential accommodation than through lettings to commercial occupiers.”