Office rents in the City of London, West End and Docklands have all finally stopped falling in Q4 2009 reveals research by NB Real Estate the leading commercial property agency.
Average headline rents for office space in the City stabilised at £42.50 per sq ft, in the West End at £65 per sq ft and in the Docklands at £30 per sq ft in Q4 – all unchanged from the previous quarter (Q3 09).
NB Real Estate says that this brings to an end over two years of decline. In the City of London average Grade A office rents are now 39% down from the peak rate achieved in Q3 07 (£69.50 per sq ft). Average West End are over 50% down on the £135 per sq ft peak rate reached in Q3 07 and in the Docklands they have fallen 40% from their peak of £50 per sq ft.
Although there were some exceptions to these falls but they were few. Even rents for the most exclusive addresses in Mayfair and St James are over 35% lower than they would have been at the market peak.
According to NB Real Estate the stabilisation of rents finally brings to an end what looked like freefall only 12 months ago.
Says James Gillett, Director of City Offices at NB Real Estate: “Landlords will be heartened to reach this point in the cycle after such a relentless negative spiral.”
The amount of vacant office space in the City of London has fallen by 12% in the last quarter alone to 7.6million sq ft from 8.6million sq ft in Q3 09. The amount of vacant space in the City peaked at 10million sq ft in Q1 09.
In the Docklands, the other large centre for financial services companies, the vacancy rate has fallen even more dramatically from 14.2% in Q3 09 to just 10% in Q4 09.
Comments James Gillett: “In the weeks after Lehman Bros investors in commercial property waited in horror expecting the investment banks to flood the market with their excess space. That never really happened.”
“While capital values have recovered significantly over the past 9 months the fact that there is now hard evidence of an improvement in the fundamentals will support the view that it will not just be another bubble. Many were starting to question the robustness of the pricing recovery and pointed to an extreme shortage in investment stock and huge demand from exchange rate advantaged international buyers as classic bubble symptoms.’’
“Headline rents only tell part of the story of course. In Q3 the talk was of the 4 years rent free that Nomura were believed to have negotiated for taking a 20 year lease from UBS at Watermark place. There is no question that this marked a highpoint for incentives and landlords are taking a much firmer line now.”
NB Real Estate says that the question on everyone’s lips is whether the uncertainty surrounding the elections, government spending cuts and tax increases will derail the office market recovery.
Gillett adds: ‘No question, there is a real risk of a short term sentiment blip but the underlying dynamics of the market mean that it is pretty well insulated from a steep plunge again and is well placed to continue its recovery barring a double dip in the wider economy.’
2009 saw the lowest volume of new office construction starts in the City of London since 1993 with work in 2009 commencing on only 486,000 sq ft of new offices. Other than 1993 the last twelve months saw the lowest level of new office starts in the City since NB Real Estate’s records start in 1977.
Says Gillett: “With pipeline supply well off long term market averages and demand still relatively modest in the same context it is no wonder that investors and developers are getting more and more confident about the medium term health of the market.”
NB Real Estate says that it expects the shortage of good space to be exacerbated as the market moves through 2010.
The increase in capital values of City office property means yields on prime office investments has fallen to 6% from 6.5% in the last quarter (down from 6.75% in Q 4 08).
![[Valid RSS feed]](http://articlepile.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites