The rise of office renters in Central London
Commercial property in the UK is still seen as secure for investors with rents and capital values set to continue rising despite overall concerns, according to a recent survey from the Royal Institution of Chartered Surveyors (RICS). Rent expectations for the next quarter are strongly positive across all sectors with 35% more chartered surveyors projecting a rise in rents.
The survey report showed that development rose sharply in the London office sector over the last three quarters of 2015. New research shows that commercial property rent in London produced an average total return of 18.1% from investments in 2015.
Levy Real Estate and MSCI’s London Market Analysis Report examined more than £30 billion of assets from 20 key submarkets and found that rental growth increased from 7.8% in 2014 to an average uplift of 8.5% last year. Simon Heilpern, Investment Partner at Levy Real Estate, said: “The latest research shows a market which still has significant momentum. Returns are now increasingly being driven by a growth in rents and this suggests that London’s commercial property investment sector can expect further sustainable growth in values.”
Mayfair has retained its position as the area with the most positively valued properties, whilst the progressive rents in King’s Cross has meant that King’s Cross/Camden showed the highest total at 27.3%. According to new data, Canary Wharf is set to have the strongest central London office rental growth in 2016 with an increase of 12.8%, followed by Shoreditch at 10% and Midtown at 9.6%.
According to a recent Knight Frank report, the development of Crossrail and affordability are the main drivers for rents to increase in Canary Wharf, as well as a general shortage of available offices across London. The report also suggests that Shoreditch are to see an increase in office rents which will be driven by the technology sector expansion. Technology and Creative firms will be seeking larger offices as they grow further after being the largest source of demand for office space in central London last year.
Head of City Leasing at Knight Frank said: “The gap between rents in traditional core areas and other sub-markets has never been so small. Occupiers are making decisions based on quality of product and amenity, availability of scale, adjacency of workforce and not by postcode.”
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