Office supply stabilised in Q4 at 1.507 million sq ft, averaging out to around 1.51 million sq ft for the year. This is perhaps somewhat surprising given the strong take-up for the quarter, but when analysing supply by grade, this highlights an interesting change in supply dynamics.
|2014 OFFICE SUPPLY (%)
|| GRADE B
It is evident that there has been a flight towards quality, with supply of grade A and B office space falling whilst grade C space has increased. Much of the vacated space no longer meets the demands of the modern office occupier. However, an increasing demand from both developers and owner occupiers to buy office buildings and a resulting recovery in capital values may encourage vendors to sell these buildings where previously they were reluctant to do so.
We anticipate that the majority of this space will be sold to developers looking to take advantage of permitted development rights allowing office conversions to residential dwellings without the need for S.106 contributions. This allowance is set to end on 30th May 2016 (although subject to potential change).
We anticipate that the trend of falling grade A space will continue into 2015 and for overall supply to follow suit throughout the year.