Prime office rents in London set to rise: C&W

Quality office space in London's West End will become increasingly difficult to find with occupiers rushing to secure the best properties now, according to global property adviser Cushman & Wakefield.

Active demand from all sectors, a rapidly dwindling amount of available space and a worrying dearth of offices being built are resulting in increased competition amongst corporates looking to fix deals, the adviser said.

Since January 2010 there has been a 50% increase in major lettings in the West End, with take-up to date - 1.91 million sq ft (177,000 m2) together with 700,000 sq ft currently under offer - more than that of the whole of last year. Cushman & Wakefield expects take-up in the West End to top 2.75-3 million sq ft by the end of 2010. This compares to 1.90 million sq ft in 2009 and marks a rebound to 2008 levels.

Guy Taylor, head of West End Office Agency at Cushman & Wakefield, said: 'The West End office market turned a corner during the second half of 2009 with take-up leaping upwards. As the recovery gains pace, we see rents climbing steeply and space growing increasingly scarce. There will be more refurbishment of buildings as banks refuse to lend money on large new office developments. As the market swings back in favour of landlords, corporates must move quickly to secure competitive deals and incentive packages.'

Key deals in the West End in Q2 included Kleinwort Benson signing on 14 St George Street and GE taking The Ark, Hammersmith. Q2 has seen two pre-lets in the West End: CBRE at Henrietta House and Robert Walters at Slingsby Place. Prominent lettings in the City and Docklands in Q2 2010 include Shell signing on 40 Bank Street, Canary Wharf and Baker Tilly at Nexus Place, Farringdon.

A major factor in the upturn from 2009 is the exceptionally low level of buildings under construction. In the West End just 605,426 sq ft of office space, with only seven schemes over 20,000 sq ft, is being built - the lowest since 1993 (505,000 sq ft). This will severely reduce the space available, causing rents to increase strongly in 2011 and 2012. The City also has a lack of new development; there are only two schemes due to finish during 2011 - Heron Tower and Cannon Place.

Including the City and the Docklands, a total of 5.3 million sq ft (492,386 m2) of office space has been taken up so far this year. This is an increase of more than 150% year-on-year. However, Q2 2010 represented a quieter quarter than Q1 in the City and Docklands, with 2.1 million sq ft taken, compared to Q1’s 3.1 million sq ft, the adviser said.

The high number of office leases expiring or reaching a break option in the next few years will also increase pressure on occupiers to review property strategies. James Young, Head of Cushman & Wakefield’s City office, said: 'This year has seen the City office market rebound strongly with leasing transactions increasing substantially and availability levels falling steeply. Occupiers are still cautious about sanctioning moves in the current economic climate, but they realise that the supply squeeze is going to lead to a lack of options, and so pre-lets will start making a return.'