According to the latest Central London Market Report from Jones Lang LaSalle, the City of London is experiencing its lowest level of office supply since 2001 as the opening three months of 2007 saw almost 1m sq ft of existing space taken off the market.

In addition, a further 1.8m sq ft is now under offer. Overall, vacancy rates have decreased from 7.5% to 6.1%, while Grade A vacancies have declined from 3.8% to 3.4%. Strengthening demand will lead to more rental growth this year. The Banking and Finance sector continues to dominate demand for Grade A space and was up by 34% in the first quarter.

“The City is now experiencing real selective shortages, particularly for larger units of immediately available office accommodation. In fact, there are no Grade A units in excess of 100,000 sq ft available. Given this lack of immediately available accommodation we expect to see more occupiers considering pre-letting as a way of satisfying their requirements”, said Neil Prime, head of office agency at Jones Lang LaSalle.

“We believe that this increase in demand for pre-lets could result in more than two million square feet of speculative development scheduled for completion between now and the end of 2009 not being delivered to the marketplace. The developers have read the cycle well and are delivering their product at a time of strengthening demand”, he concluded.