Beating the forecasts

Few analysts could have predicted the rapid turnaround in the central London office market when the recession kicked in
during early 2008. The forecasts were terrible; the collapse of the market, the decline in employment and the loss of the City’s status as the leading world financial centre. They were wrong and now the problem, particularly in the Square Mile, is the shortage of supply as financial institutions expand and increase their employment.

The problem is that there is a shortage and those with the prime space, such as Gerald Heron in Bishopsgate and Irvine Sellar at the Shard, London Bridge have reaped the benefit. Some property professionals are concerned about the period of shortage of supply whic could last two years, suggests Tony Joyce of GVA. Here, one of the problems noted by Joyce “are landlords whose funding package pushes them towards seeking 15 year leases at a time when occupiers mostly want 10 years”.

For City agents like Joyce the recovery in rents has been rapid with a majority of deals done for prime new space being above £538 a sq.metre (£50 a sq.ft.). In fact, the City saw the largest annual increase in rents for 22 years in 2010 with increases of 25% for prime space, said Drivers Jonas Deloitte. That was on the back of a letting total of near 557,400 sq.metres (6 million sq.ft.). Drivers Jonas Deloitte’s Anthony Duggan commented: “Although we are not expecting rents to continue at the pace seen last year, we do expect double digit growth again in the City.”

The firm makes the point that only two large buildings are completing this year. Naturally enough rent free periods have come back substantially, in both the City and West End. Investors, dominated by foreign nationals and organisations, have responded to the strong performance with purchases in central London in 2010 totalling £9.9 billion, a rise of a third on the previous year. Overseas buyers accounted for two thirds of the total. Cushman & Wakefield’s Clive Bull said: “With sterling still weak and an increase in stock likely with banks offloading assets, we are confident that 2011 will see volumes continue to rise.”