Central London office market: West End rents forcast to continue rising
Date: 5th February 2008 | 
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London, UK – West End office rents are to continue to increase, with investment yields across Central London softening by the end of Q4 2008, according to Knight Frank, which today hosted its annual Central London Office Market breakfast at The Dorchester, London.
Knight Frank predicted that:
Office leasing market
- Prime headline rents in the West End core will increase by 5% to £115.50 per sq ft by end Q4 2008, and by a further 2% by end of 2009 to £118.00 per sq ft (Q4 2007: £110.00 per sq ft), securing it as the most expensive place to rent office space in the world.
- Prime headline rents in the City will remain unchanged at £63.50 per sq ft by end Q4 2008, and decline by 1.5% to £62.50 per sq ft by the end of 2009
Office investment market
- Prime yields in the West End will soften to end Q4 2008 at 5.25% (Q4 2007: 5.00%)
- Prime yields in the City will soften to end Q4 2008 at 5.75% (Q4 2007: 5.25%)
Residential development market
- Value of completed Central London prime new build residential property (£2 to £10 million) will increase by 3% to end Q4 2008
- Value of completed Central London super prime new build residential property (£10 million plus) will increase by 5-8% to end Q4 2008
James Roberts, head of central London Research, Knight Frank said: “The City has a challenging two years ahead, as the balance of the market is tipping in favour of the tenant. But we are not seeing the market flooded with sub-let space from banks, as occurred in 2002 and 2003. The West End is not showing any signs of vulnerability, as lack of supply is providing insulation against the cooler economic environment. Contrary to what people would expect, the fund managers and private banks in Mayfair and St James’s are still taking space.”
Commenting on the office leasing market, John Snow, head of central London, Knight Frank said: “The City office market in the medium term will be defined by how much potential demand converts back to active. In the West End, the eclectic mix of tenants combined with shortages of supply should keep the market in check. Prime rents in the West End will continue to grow albeit at a marginal rate.”
Guy Napier, head of City, Knight Frank provided his views on the Central London Investment market: “There has been a succession of gloomy indicators on London offices, but we are predicting a correction not a calamity in 2008. We believe that the bad news is now largely priced into the market, and already properties that just three months ago were attracting little interest are seeing increasing activity. We expect both markets to return to rising capital values during 2009 and beyond, beginning in the West End.
London benefits from being an international market place for property investors – someone somewhere in the world always has money they want to invest, and London offices remain a long term attraction. At the moment the sovereign wealth funds, together with Australians, Canadians, and Irish are keen to invest in London.”
Giving his outlook for the Central London new homes development market, Justin Gaze, London Residential Development, Knight Frank said: “The super prime residential market will continue to perform well against the run of play. We will see growth in the face of very limited supply in this tightly defined market. Prime properties will be sought after but price growth will be minimal in the first six months, with probably 0.5% growth per month thereafter. Sales volumes are likely to be depressed in comparison to previous years which after all, were exceptional.”
For a copy of the Central London Quarterly research report, please email olivia.gallimore@knightfrank.com
For further information, please contact:
John Snow, head of central London, Knight Frank, +44 (0)20 7861 1190
Guy Napier, head of City office, Knight Frank, +44 (0)20 7861 1315
Justin Gaze, London residential development, Knight Frank, +44 (0)20 7173 4907
James Roberts, head of central London research, Knight Frank, +44 (0)20 7861 1239
Olivia Gallimore, commercial pr manager, Knight Frank, +44 (0)20 7861 1035
Ends
Notes to Editors
Knight Frank’s research showed that in Central London in Q4 2007:
- Take-up for Q4 2007 totalled 2.6 million sq ft taking the total for the year to 15.6 million sq ft
- Supply rose 26% over the quarter to 13.7 million sq ft, representing a vacancy rate of 6.2%
- Investment turnover fell 80% to £1.4billion for the final quarter taking the annual total to £17.2 billion
- Prime yields softened in both the City and West End in response to the fall in investment demand
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank and its New York-based global partner Newmark Knight Frank operate from over 165 offices, in 36 countries, in six continents. For further information about the Company, please visit www.knightfrank.com