London office space values to soar 43%

Published 03rd Feb 2010

The value of office space in London is set to soar by a massive 43 per cent this year as a result of a lack of supply.

Office rents in the City will also rise by 19 per cent this year, according to Knight Frank, due to a shortage of high quality space available.

The forecast increase would see the cost of renting an office in the Square Mile rise from £44 per sq ft to £52.50 per sq ft by the end of 2010, mainly as a result of the drop-off in new commercial development.

Rents in the West End are also forecast to rise by 11.5 per cent this year, from £65 per sq ft to £72.50 per sq ft, with Knight Frank suggesting that hedge funds and other financial services firms that are beginning to expand again would contribute to an increase in demand.

Knight Frank said its forecast showed the extent to which the lack of supply that has been affecting the housing market is also affecting the market for offices and shops in sought-after parts of the capital.

The availability of office space in London is set to fall by 14 per cent this year, while the completion of new office schemes will fall by 26 per cent.

Ronnie Nathan, chairman of Capital & Overseas Holdings, said: “Now is a worse time to invest that at the peak of the market in 2007 because of the lack of choice. It has driven values right up and yields down - those with millions to spend on behalf of investors won’t find any bargains.”

Knight Frank said that yields, a measure of the return on property investment, would harden further this year, by around 1 percentage point for City offices and 0.75 percentage points in the West End, as a result of intense demand for good quality schemes.

The extent of the supply crisis was also evident in Knight Frank’s figures on the rising values of residential urban development land. This was up by 2.1 per cent in the last three months of 2009 - a figure that reached 7 per cent in the prime postcodes of central London. The value of greenfield development land increased by 4 per cent in the final three months of last year.

However, there are fears that the removal of Quantitative Easing, combined with an expected increase in interest rates towards the end of the year, will reverse some of the recent rebound in values.

Source: ' Times '

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