A Tale of Two Cities
The market for office space to let in the City of London has developed two clear tiers, says James Gillett at NB Real Estate. Occupiers are fighting over the best available space and taking advantage of the incentives available to upgrade to Grade A properties, while enquiries for properties in secondary locations are often not being followed up.
Rents for Grade A offices in the City have jumped around 25% this year, from £42.50 per sq ft in the first quarter of 2010 to £53.00 per sq ft during Q3, notes Gillett, who is director of City Offices at NB Real Estate, part of the Capita Group.
The supply of new buildings has dried up and, although developers have dusted off some plans amid the rise in rents, many of the projects currently underway will take several years to come to market.
“There is a real danger the market will be oversupplied with lower-grade space when the Grade A pool runs dry. Why move from Grade B to Grade B when your existing landlord will be at pains to incentivise you to stay?” Gillett asks. “In the short term we expect to see more pre-commitments to new developments as the speculative pipeline fails to meet demand.”
Meanwhile in the Docklands office rents have remained at £40 per sq ft in Q3 2010, stabilising after a period of sharp growth since the start of the year. NB Real Estate thinks that growing occupier demand could feed through to further rent increases as the development pipeline is empty from 2011 onwards.
The agency notes that office rents in the West End, which were more insulated from the downturn thanks to the area’s more diverse occupier base, have seen more subdued growth this year as a result – rents have risen 4% over the past 12 months.
