Low vacancy levels will continue to result in widespread rent increases throughout much of the Central London office market during 2014 with rents forecast to increase by between 5% and 9% by the end of the year, according to Carter Jonas’ latest research report for occupiers “Commercial Edge London”.
The largest increases are likely to be in areas associated with particularly low vacancy levels such as Mayfair, St James’s, Marylebone/North Oxford Street, Soho, Southwark, London Bridge and the north City fringe.
Highlights
- Northern City fringe – Farringdon, Clerkenwell and Shoreditch – recorded the highest level of rental growth, when compared with all the other Central London office sub-markets – between 13.3% and 15.8% during 2013
- Eastern City fringe and Docklands office rents are some of the lowest in London – typically £30.00 – £40.00 per sq ft per annum for refurbished Grade A space
- Prime West End office rents have risen between 5% and 9% since Q1 2013 and are now £100 – £120 per sq ft per annum (Q1 2013: £95 to £110 per sq ft)
- Rents in the City core are £55.00 – £59.50 per sq ft (Q1 2013: £52.50 – £59.50 per sq ft) and over £70.00 per sq ft per annum for the “penthouse” floors of tower buildings
- Central London office rents are predicted to rise between 5% and 9% by the end of the year due to a combination of improving demand and historically low vacancy levels across the capital
- Rent free periods for 5 year leases are up to 9 months in prime West End locations and up to 12 months in the City core
- Discounts on landlord’s quoting rents are typically 2.5 – 5% in the West End & South Bank and 2.5 – 7.5% in The City
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Changes In Typical Grade A Office Quoting Rents (per sq ft pa) Since Q1 2013 |
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| Location |
Rent Q1 2013 |
Rent Q1 2014 |
% Increase |
| City of London Prime – Old Broad Street, EC2 / insurance district, EC3 |
£52.50 – £59.50 |
£55.00 – £59.50 |
Up to 4.76% |
| City of London Secondary -Blackfriars, EC4, Barbican, EC2, Liverpool Street, EC2, Aldgate, EC3 |
£42.50 – £50.00 |
£45.00 – £52.50 |
5.0 – 5.9% |
| City “Fringe” North/North West – Farringdon, Clerkenwell, EC1, Finsbury Square, Shoreditch, EC2 |
£37.50 – £47.50 |
£42.50 – £55.00 |
13.3% – 15.8% |
| “Midtown” – Holborn, WC1 Covent Garden, WC2 |
£55.00 – £65.00 |
£57.50 – £70.00 |
4.5% – 7.7% |
| West End Prime – Mayfair, W1 / St James’s, SW1 |
£95.00 – £110.00 |
£100.00 – £120.00 |
5.3% – 9.1% |
| West End Secondary -Fitzrovia/North Oxford Street East, W1 / Victoria, SW1 |
£55.00 – £65.00 |
£60.00 – £70.00 |
7.7 – 9.1% |
| “South Bank” – London Bridge / Southwark, SE1 |
£42.50 – £47.50 |
£45.00 – £52.50 |
5.9% – 10.5% |
| West London – Hammersmith, W6 |
£37.50 – £39.50 |
£40.00 – £47.50 |
6.7% – 20.3% |
| Docklands – Canary Wharf, E14 |
£37.50 – £45.00 |
£37.50 – £45.00 |
0% |
Source: Carter Jonas Research
Michael Pain, partner, head of Central London tenant representation, Carter Jonas said: “Low vacancy levels continue to persist throughout much of the Central London office market which has resulted in widespread rent increases during the second half of 2013, a trend that we predict will be the hallmark of 2014.”
Northern City fringe – Farringdon, Clerkenwell and Shoreditch – recorded the highest level of rental growth, when compared with all the other Central London office sub-markets – between 13.3% and 15.8% during 2013.
“The increases in office rents in the northern City fringe have been catalysed by the influx of technology and creative companies (TMTs) in to the area over the last few years.” Michael Pain commented. “Historically low vacancy levels, and an increasing trend towards redeveloping office buildings for residential use, are gradually eroding the area’s advantage as a low cost location. Consequently, some occupiers are widening their areas of search, when contemplating a relocation, to include the east City fringe (Spitalfields, Aldgate and Tower Hill), Docklands and South Bank areas where rents are typically £29.50 – £42.50 per sq ft – contrast with rents of £45.00 – £55.00 per sq ft per annum in areas such as Clerkenwell and Farringdon.”
The South Bank – London Bridge and Southwark – recorded the second highest increase in rents – between 5.9 – 10.5% during 2013, reflecting supply side constraints which are likely to persist for the foreseeable future as large pre-completion lettings on buildings under refurbishment/development take place, limiting the stock of new vacant floor space coming to the open market via the development process.
Recent examples of pre-completion of construction lettings include:
- 428,000 sq ft at The Place, London Bridge Street, SE1 to News UK (media – relocation from Thomas More Square, E1)
- 226,000 sq ft at Sea Containers House, 20 Upper Ground, SE1 to Ogilvy and Mather (media – relocation from Canary Wharf, E14)
Docklands is the only sub-market to record zero rent increases since Q1 2013 – reflecting weak tenant demand and high vacancy levels. Save for 25 Churchill Place (500,000 sq ft) the currently available vacant office space in Docklands is second hand. Vacancy levels have risen since the peak of the London office market in 2007 as occupiers from the banking and legal sectors rationalise their staff headcounts, following the 2008/09 banking crisis, and seek to sub-let surplus space.
Michael Pain concluded: “As the number of existing buildings in The City that can accommodate office requirements in excess of 100,000 sq ft dwindles, it is likely that tenants that have insufficient time to satisfy their relocation requirements by way of a pre-let agreement on buildings that have yet to built will, out of necessity, switch their areas of search to Docklands. This is the only other London office sub-market capable of accommodating large scale office requirements in existing buildings at rents circa £10.00 – £15.00 per sq ft pa below those of the City core.
“We therefore believe that demand for Docklands’ office space will improve throughout 2014. Towards the end of the year it is quite possible that rents for refurbished Grade A space at Canary Wharf will reach an average of £37.50 – £42.50 per sq ft per annum compared with, typically, £35.00 – £40.00 per sq ft pa today.”
