The vacancy rate of commercial property in Central London has doubled from 4% in 2019 to over 8% in 2020 according to CBRE data – and it’s expected to rise further.
Research consultancy Capital Economics said it’s set to increase by another 2-3% in the next two years, pushing the vacancy rate into double digits for the first time since 2003.
As a result the cost of renting is expected to fall by -4% annually this year and -2% next year.
However it’s predicted that London will avoid a collapse in office rents, as the firm said the relationship between rental growth and vacancy levels has weakened over time.
Last year the sharp increase in vacant space didn’t result in as steep a fall in rents as expected, while MSCI data shows that rents rose slightly in January and February.
The report, by Andrew Burrell, chief property economist at Capital Economics, said: “With office occupiers cutting space requirements, London office vacancy has climbed sharply.
“Our estimates suggest that vacancy is likely to rise even further over the next year or so and we have revised down our rental forecasts as a result.”