We’ve recently updated our London office rental guide to reflect changes in the market in the final quarter of 2015. Whenever we update the guide, we are asked what we think office rents will be in 6 or 12 months’ time. And so it is the case, once again: “Have they peaked?” tenants ask hopefully. “Will they even start to tail off as construction ramps up?” ask the optimists. “Or will increasing demand continue to push rents ever higher?”
We don’t have a crystal ball: 2016 has already seen volatility in the financial and commodities markets, which makes it tricky to predict the future with complete confidence. With the benefit of hindsight, we are – of course – much better equipped than most to comment on the current state of the market.
What is the current state of the market?
Our figures for Q4 2015 show London office rent rises across the board, with increases in 16 out of the 18 business districts due to a continued imbalance between supply and demand.
Latest data shows office rent rise in 16/18 London business areas due to a supply & demand imbalance
The cheapest areas in our report remain Silicon Roundabout and Waterloo and Southwark, but even in these districts headline rent have now increased to £50.00 per ft2. For the first time in our analysis, the lowest rent in our guide starts with a 5! (It is worth reminding you this guide is for good quality, air conditioned office space).
We’ve seen a continuing trend of companies moving north and east in pursuit of value in terms of rent, rates and service charge. A glance at our rent guide shows a huge difference in business rates payable – ranging from £11.00 per ft2 in Southwark to over £40.00 per ft2 in Mayfair & St James’s. Overall costs in Mayfair & St James’s of £149 per ft2 compare to £69.00 per ft2 in Southwark.
So much for the past and the present, what about 2016?
Having issued a disclaimer at the beginning of this piece, I will – nevertheless – take a stab at where we might be in 12 months time. Overall, if the financial fundamentals in the UK remain stable, 2016 will see an increasingly challenging central London office space market for tenants, with diminished supply pushing rent up across the board by around 7.5% . Some core areas may remain pretty static, but we predict larger increases in radically improving locations such as King’s Cross, Clerkenwell, Shoreditch and the South Bank.
2016: an increasingly challenging London office market as diminished supply pushes rent up by 7.5%
Where should tenants look for value?
With rents increasing even at the cheaper end of the scale, tenants seeking more value will need to look even further afield to the boundaries of Zones 1 & 2. We have just been commissioned to help leading architects find 5000 ft2 on a single warehouse floor. Presently based in Clerkenwell, we will look as far east as possible , although decent transport links are essential for them to gain and retain staff. Areas under consideration will be Mile End, Hackney, Whitechapel & Haggerston.
In this ever more challenging market, tenants need more help then ever. If you are looking for office space, please tell us what you are looking for and we will do our level best to assist you.