The green shoots of falling office rents are being masked by rising overall costs.

The long predicted green shoots of falling office rents in London are finally starting to appear. I expect the trend to continue not only because of ongoing economic uncertainty, but also office tenants paying increased business rates.

Our recently updated Q1 2017 rent guide indicates typical rents in Mayfair & St James’s for quality (but not “prime prime”) office space fell from £98 to £95 per ft2 per year, in King’s Cross to from £68 to £65 per ft2 per year and in Midtown from £68 to £63.00 per ft2 per year. Rent for high quality space in other London areas has remained broadly unchanged, so far…

Rising business rates are masking falling office rents across London

And yet despite falling office rents, overall costs are going up? Why?

Frustratingly, however, for office occupiers (except for tenants taking new space in Mayfair, St James’s & Midtown) the overall cost of occupying an office has increased, despite falling office rents! At first glance this seems odd. However, if you look at the business rates payable column, it will make more sense. Business rates have increased in many central London areas by around 20%. And some of the harder hit areas are at the lower end of the rental guide. Business rates vary from building to building, but it’s possible to specify typical rates for each London area. We have seen rates for buildings in Silicon Roundabout, for example, go up by 60%!

Office rents were re-valued for rating purposes way back in 2015. However, increased rates are only now being levied on tenants, two years later. The two-year time lag should give tenants time to factor in increased costs. Unfortunately the economic environment is more challenging now than it was two years ago for most central London office occupiers.

This isn’t a new phenomenon: the last time central London business rates increased dramatically was in 2010. Tenants took a kicking on the floor with increased rates based on rental values at the peak of the last boom in April 2008. A few months later, Lehman’s filed for bankruptcy!

Have a look at our newly updated London office rental guide for a broad overview of falling office rents combined with rising overall costs across the capital.

Tenants punished by spiralling costs despite falling office rents

About Ian Kitchener

Ian Kitchener

Ian has advised Central London office occupiers for over 20 years. He loves fighting their corner and making sure they get what they need - a great office on the best commercial terms available.

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