31 March 2010
NB Real Estate, a division of
Capita Symonds, has revealed that rents in the City of London
soared by 11.8% in the last quarter alone as they finally snapped
back after a two and a half year bear market*.
Average rents on City of London Grade A office rents increased
from £42.50 per sq ft in Q4 2009 to £47.50 per sq ft.
NB Real Estate points out that this is the biggest quarterly
increase in City of London office rents since reliable records
began in 1988!
“This is a phenomenal recovery in rents in such a short space of
time. It is not normal to see rents jump so dramatically but there
has been little that has been normal about the commercial property
market or the City of London over the last two years.” comments
James Gillett, Director of City Offices at NB Real Estate
“When you consider just how far rents had fallen and how cheap
some office space in the City of London had become we shouldn’t be
surprised to see such a violent recovery in rents.”
“Landlords and the financial institutions across the City and
Docklands are far more optimistic than they have been in
NB Real Estate also points out that City of London rents are
still way below their peak of £69.50 per sq ft in Q3 2007. Office
rents across London have tumbled since the end of 2007 and hit a
floor in Q4 2009 before rocketing in Q1 2010.
Adds James Gillett: “On the way down, through the credit crunch,
we saw falls in average City rents of 8.7% in Q4 08, after the
collapse of Northern Rock, and a fall of 9.5% in Q1 09. Extreme
volatility has been a feature of the last 24 months but we can hope
that things start to calm down soon.”
According to NB Real Estate a total of 1.2 million sq ft of
space was let in the City of London in Q1 this year – six times
more than the 202,000 sq ft of Q1 2009.
The recovery of rents in the Docklands market has been even more
dramatic with average achievable rents on Grade A office space
increasing by 25% from £30 per sq ft at £37.50 per sq ft. Again
average rents in the Docklands are still far below their highs of
£50 per sq ft.
Explains James Gillett: “The Docklands office market is a far
less liquid market than the City of London market so it doesn’t
take too many deals to push average rents one way or another. As
with the City of London office market this amazing recovery in
rents has to be seen in the context of dramatic fall in rents over
the last two years.”
Rents in the West End have also started to recover increasing by
3.8% in the last quarter from £65 per sq ft in Q4 09 to £67.50 in
NB Real Estate suggests that the comparative lack of exposure
that the West End has to the fast recovering investment banking and
traditional fund management community explains it slower
James Gillett also points out that the City of London and
Docklands have been helped by the extreme shortage of new prime
office space being developed.
Says James: “The pipeline of new build office space in the City
was just turned off almost completely – that was how fierce the
credit crunch was for the property and construction industry. It is
partly this shortage of new build prime office that has enabled
rents to recover so quickly.”
However, James Gillett warns that although there is an acute
shortage of the best quality space there is not the same shortage
of lower quality stock.
Concludes James Gillett: “Whilst landlords want to squeeze the
very best deals out of the marketplace there is always the risk
that they will try to move rents up too far, too fast and drive off
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