Despite economic uncertainties, headline rent for quality office space remains stubbornly high. Have a look at our recently updated office rental guide for a full breakdown.
But if you scratch below the surface something unpleasant is happening to landlords. At the moment, it can take an age to let vacant space. We have come across examples of it taking more than a year! So landlords are suffering the triple indignity I have seen before:
- They are losing rent
- They are paying more void costs
- The value of their buildings may be falling
Worrying news for landlords, better news for tenants?
Worryingly for landlords, some of these void costs (e.g. business rates) can be quite expensive. Business rates are not charged for the first 3 months of an office being vacant. But after this initial holiday, landlords holding vacant space have to pay 100% of the rates bill until they are able to secure a new office occupier. In London’s most expensive business areas such as Mayfair & St James’s, this cost could easily be £45.00 per ft2 per annum! So on a modest 3000ft2 office the annual vacant rates bill alone could be £135,000. Of course this significantly raises the pressure on landlords to let vacant space – which is good news for prospective tenants.
Scratch below the surface something unpleasant is happening to office landlords
How is the market reflecting this?
Whilst headline rents remain high, we can see a trend of tenants negotiating much harder for rent free periods . In a number of central London office locations, we have seen rent free periods increase from say 1 month to 2 months for every year certain of a typical 5 year lease.
If you need help negotiating the best commercial terms on a new lease, please get in touch.