The Rise in London Office Rents & Our Prediction

The Rise in London Office Rents & Our Prediction

Are London office rents continuing to rise?

Although the commercial property picture portrayed in the media isn’t as optimistic as it was before June’s EU referendum, there is no question that London has experienced a surge in office rents over the past few years.

In October 2015, the government announced that the temporary permitted development rights, introduced in 2013, would be made permanent. These enable offices to be converted to new homes without the need to apply for planning permission, which has predominantly driven office rents in one direction (north) due to limited available property.

In October 2015, Business Insider reported that the cost of renting an office went up by 11% in the first six months of the same year – the highest increase of any major global city in the same period. In addition, according to statistics reported by Property Wire, the capital’s rental values rose 0.2% in May and 0.3% in June.

However, PropertyWeek has reported that London office take-up dips amid Brexit uncertainty whilst the ramifications of leaving the EU will be analysed. During this period, the team at Aspire expect some clients to consider serviced offices for a 12 month basis, whilst other companies who can commit to a longer term of 3 or 5 year plus will benefit from significantly better rental terms.

Our prediction

The UK property sector should prepare for a volatile summer, which will unsettle sentiment in the market and bring uncertainty to occupiers, developers and investors alike.

However, commercial rents and capital values do not grow in a period of great uncertainty. The London office market has seen some volatility, but the fundamentals of the market are strong. The long-term outlook remains robust, with the attractiveness of London as an international business and social hub fundamental to the sector’s longer-term resilience.

But it is not a one size fits all approach. Some occupiers are taking the decision to move to lower cost locations within Central London, while others will compromise on space to remain in a more expensive market. As mentioned, some will require shorter leases whilst others will instruct a tenant advisor to negotiate the best rental terms and incentive package in the current property market.

Nevertheless, every office building has its own story so each negotiation must be taken in its own merits. As mentioned before, there is a lack of supply when it comes to available office space and we predicts that whilst office rents will cool-off temporarily, it will continue to rise in Q1 of 2017 until the major office developments are completed in 2018. Once we start to experience a narrower bridge between the level of demand and supply, new opportunities for commercial tenants should open up and – most probably – adjusting rents in favour of the tenant.

Contact Aspire here or 020 3627 2555 phone if you require professional advice on London office rents during your search for commercial property

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