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London’s commercial property market continues to be dominated by optimistic rental growth prospects and growing yields, according to a report on Commercial Property published by London Office Space yesterday.
“Activity levels across all commercial sub-sectors began to accelerate in February, which is consistent with the trends observed during the past six months,” said London Office Space spokesperson Katherine Aird. “London’s established reputation as a global hub for businesses in the knowledge economy has brought about an increase in the amount of funding devoted to research and development, over £1.5 billion a year according to the most recent data. This fact has had a clear effect on the London commercial property market, which continues to provide support to new startups and relocating businesses. In turn, this has prompted changing occupier trends.”
Companies which operate in the knowledge-intensive sector have begun to look for properties beyond the Tech City and other areas that traditionally had a strong presence of media and knowledge companies, such as Soho and London Bridge. New clusters have emerged in Stratford, Tottenham, and New Cross. These areas increasingly cater to the property requirements of small and medium-sized businesses, which made up 47% of all transactions during the first quarter of the year. The current floor space supply is set at 6.7 million square feet and vacancy rates average 6.9 per cent. The top rents achieved during this quarter reached £70 per square foot.
Office market availability has come under pressure due to the large number of commercial-to-residential conversions and to the significant level of commercial property being held as long-term assets. This is particularly the case in high-value areas where, for example, up to 80 per cent of the office floor space in Mayfair or St James, is locked up by investors.
In the West End, a sub-market traditionally occupied by companies in the media and creative industries, rents have reached average values of £80/sq ft in Fitzrovia and Soho although asking prices remain as high as £107.50/sq ft in other West End areas. In East London there has been high demand for co-working space from the TMT sector, especially in and around Old Street and in the EC2V postcode. The office development pipeline currently concentrates around the Olympic Park, a very attractive location for digital, advanced manufacturing, and life sciences occupiers. Overall, prime office rental values could increase by 6 per cent over the next two quarters, whereas rental growth in secondary locations is expected to remain stable.
“Lastly,” continued Katherine Aird, “according to researchers the office investment market shows that during February 2015 alone more than £160 million was poured into the market through seven large transactions, which involved the acquisition of office floor space in 1 Mabledon Place, 42-60 Kensington High Street, and 100 Knightsbridge, among others. Average prime yields are 3.25 per cent for offices in the West End and 4.25 per cent in the City.”
Click here to read the full report
Release ID: 80150