London office rents to soar in 2010: report

But rents in the rest of the UK expected to keep declining

Office rents in London are seen surging in 2010, boosted by rising confidence among financial tenants and tight supply, having fallen up to 40 per cent in the global financial crisis, a report said on Tuesday.

Property consultants King Sturge is forecasting prime rents in the City of London financial district to rise 10.5 per cent to £47.50 (S$106) per square foot (psf) by end-2010. Rents in the West End will rise 7.6 per cent to hit £70 psf, King Sturge said in its report.

The expected improvement in rents may ease investor fears that the UK commercial property market’s price rebound could be short-lived due to continued tenant weakness.

Recent threats by banks and other financial institutions to shift offices from the UK to other countries with friendlier tax jurisdictions are likely nothing more than ’sabre-rattling’, said Mark Bourne, King Sturge’s head of London Office Agency.

‘They are just using what they normally do, in terms of planning at the start of each year, to send a message to the government … the real impact on the UK market, I believe, will be negligible,’ Mr Bourne said at a press briefing.

British newspapers reported last month JPMorgan was mulling scaling back its new offices in London’s Canary Wharf, after the US bank’s CEO Jamie Dimon expressed concerns about a new tax on bankers’ bonuses in a call to finance minister Alistair Darling.

While London is poised for recovery, in the rest of the UK, where the peak-to-trough rental fall has been milder at up to 10 per cent, King Sturge predicts rents to keep declining due to weak demand, although at a slower pace than in 2009.

‘Regional markets relied heavily on local public sector deals to support take-up in the downturn, and may be hit harder as the UK government battles to cut its huge fiscal deficit post-election,’ Mr Bourne said.

Experts have said the poor outlook for the regional markets could further widen a pricing gap between prime commercial properties and lower-grade assets, likely postponing a broader sector recovery by five years or more.

‘The secondary market is affected by many issues at the moment, and a key one is with the occupational market is so tough … not a lot will happen until banks start lending significantly to prospective buyers again,’ King Sturge head of UK investments Neville Pritchard said.

Source: Business Times, 7 Jan 2010