Office rents in London's financial district are expected to increase by more than 10% in 2007, fuelled by a surge in demand from lawyers and accountants, according to research by estate agent chain DTZ.

Office rents in London's financial district are expected to increase by more than 10% in 2007, fuelled by a surge in demand from lawyers and accountants, according to research by estate agent chain DTZ.

Last year, office rents in the City increased 14%, thanks to a combination of falling availability of prime locations and an extremely buoyant investment market. In the past two years alone, take-up by law firms and other financial services companies rose to 27% of City lettings, compared to the long-term average of 13%.

'For 2007, we are forecasting another year of double-digit rental growth for the best quality space in the City. A shortage of new built space in the first half of the year will likely encourage occupiers to let space that is under construction,' Alistair Brown of DTZ said.

Separately, property fund manager Invista has warned that the UK property market risks becoming split into a flourishing office market and languishing retail sector. 'The property market is experiencing divergent trends and investors should not treat it as a monolithic sector,' Invista ceo Duncan Owen said during a presentation on REITs last week.

Rental growth at standard retail property and shopping centres is expected to decline from an estimated 2% and 1.8%, respectively, this year to 1.8% and 1.6% in 2008, according to ING UK Real Estate Income Trust.