West End rents forecast to continue rising - Knight Frank

West End office rents are set to continue increasing, with investment yields across Central London softening by the end of Q4 2008, according to Knight Frank. The UK property advisor predicted that prime headline rents in the West End office market will increase by 5% to £115.50 per sq ft by end Q4 2008, and by a further 2% by end of 2009 to £118.00 per sq ft, securing it as the most expensive place to rent office space in the world. In the City, prime headline rents are forecast to remain unchanged at £63.50 per sq ft by end Q4 2008, and decline by 1.5% to £62.50 per sq ft by the end of 2009.

'The City has a challenging two years ahead, as the balance of the market is tipping in favour of the tenant. But we are not seeing the market flooded with sub-let space from banks, as occurred in 2002 and 2003', said James Roberts, head of central London Research at Knight Frank. 'The West End is not showing any signs of vulnerability, as lack of supply is providing insulation against the cooler economic environment. Contrary to what people would expect, the fund managers and private banks in Mayfair and St James's are still taking space', he added.

By the end of the year, prime yields will soften both in the West End and in the City reaching 5.25% and 5.75% respectively, compared to 5.00% and 5.25% in end-2007. 'There has been a succession of gloomy indicators on London offices, but we are predicting a correction not a calamity in 2008. We believe that the bad news is now largely priced into the market, and already properties that just three months ago were attracting little interest are seeing increasing activity,' said Guy Napier, head of City at Knight Frank.

The property advisor expects both markets to return to rising capital values during 2009 and beyond, beginning in the West End.