Prime City of London office rents up 25%

Recession-driven discounts, lack of office space fuelling rise: NB Real Estate

(LONDON) Prime office rents in the City of London financial district have gained nearly 25 per cent since January, with recession-driven discounts pushing tenant demand, property consultancy NB Real Estate said yesterday.

The six-month rise was the strongest period of rental growth since reliable records began in 1988, NB Real Estate said. It has been part-fuelled by a lull in the development of high quality office space.

'The recession saw a collapse in new construction starts in the City. Tenants are now locked in bidding wars over the dwindling supply of grade A space, which is driving up rents,' said James Gillett, director of City Offices at NB Real Estate.

The amount of available office space in the City at the end of the second quarter of this year was 6.8 million square feet, down 28 per cent on the year earlier period.

Many London businesses are making a so-called 'flight to quality' as offices previously considered too expensive are now affordable, Mr Gillett said.

Average rents for prime offices in London rose from £42.50 (S$88) a square foot in January to £53 a sq ft at end-June, NB Real Estate said in a statement.

London rents are still well below their third-quarter 2007 peak of £69.50 a sq ft, said NB Real Estate, a unit of Capita Group.

Secondary office stock has remained relatively immune to the rent rises. Mr Gillett expects that to change once the supply of primary office stock dries up, which he said was likely due to the lack of new construction projects.

'The shortage of new space will become more acute over the next few years. There have been no significant construction starts in the City this year, as lack of development finance continues to be a concern,' Mr Gillett said.

Docklands office rents gained 6.7 per cent in the second quarter of this year to £40 a sq ft. Rents in London's West End theatre district held at £67.50 a sq ft, after a 3.8 per cent hike in the first-quarter this year. -- Reuters

Source: Business Times, 13 Jul 2010