Our new City of London expert, Alastair Chapman explains why office rents are rising in the Square Mile and on the City Fringes…
In the City of London, there has been a serious imbalance in the development cycle resulting from a cessation of almost all speculative office development schemes following the 2008 banking crisis. Whilst this speculative building programme is now back in play, it has come too late to rebalance an acute shortage of space provision to meet a pent up level of demand for smaller/medium range office space through release of larger units as occupiers take up these new Grade A office units/buildings. As a result, stock shortages and increasing rents in the City are daily headline news.
City office rents have rocketed by up to 20% in the past 6 months
Over the last two financial quarters, the pinch point in availability of smaller units of, say, up to 2–3,000 ft2 has spread up to 10,000 ft2. As a result, demand for both new and second-hand (often unrefurbished) units has increased dramatically with increases of around 15–20% uplift in rents, in some cases, and a reduction in rent free incentives on offer from landlords. Only above this 10,000 ft2 level is there a more ready supply of office space to be found.
Demand for office space outstrips supply on the City Fringe
On the north City Fringe, unprecedented demand for office stock from the TMT (Technology, Media and Telecommunications) Sector which dominates the Clerkenwell – Shoreditch districts has driven up rents to levels which exceed some central City sectors (particularly those in the EC3 insurance/commodities/shipping sector). A flood of new/refurbished office schemes, specifically geared to these TMT occupiers with minimal internal finishing, has not eased either demand or rental growth.
Lack of alternatives means staying put or switching to serviced offices
With this TMT factor, a considerable level of office to residential conversion and a virtual drying up of available office stock south of London Bridge and Blackfriars Bridges in Southwark SE1, the resultant shortage of space in the traditionally cheaper fringe areas has left the small/medium sized City occupier with nowhere else to move to in order to reduce costs. This leaves occupiers with little alternative than to pay the rent (often in stiff competition with others) or to decamp to a more expensive serviced office option, a sector where serviced office providers are achieving near-capacity take up.
Let Find a London Office help…
The need for occupiers to seek local knowledge regarding office stock availability and current lease terms (including rents and incentives) has never been greater in the City of London. If you are looking for office space in the City, and are finding it to be more challenging than you expected, please get in touch and tell us what you are looking for. Here at Find a London Office, we have access to information about office space before it comes on the market. We can provide you with this specilist office search facility coupled with sound professional advice on lease terms.