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Recent evidence is showing that within London the office market is performing strongly, resulting in office values continuing to rise. This is unlike the rest of the United Kingdom where the office market remains relatively static.
This new research by CBRE found that in October alone there was a 0.9% increase in office values in London with the West End standing out most of all. On a national level it has been considerably more depressing with commercial property falling by 0.2% in September followed by a 0.1% drop in October. UK offices nationally rose by 0.3% but this is considered to be solely dependent on the London office market.
November has been relatively flat but this has not hindered activity from international investors. The Azerbaijan state oil fund, Sofaz, and its £177-million investment in a West End office highlight this. The office is being let to HSBC for £9.65 million until 2023. This investment decision was a way of diversifying Sofaz’s portfolio and it is evident that the London office market is seen as a safe bet in the current unpredictable financial climate. Although much international investment has come to the UK it is increasingly obvious that it is purely targeted towards property in Central London – which dominates as the active market.
Throughout Central London rents hardly varied at all between November and December with top rents in Mayfair remaining very much at £95 per square foot and £55 per square foot in Soho.
Rents in the West End also experienced very little change through October but other areas of London have shown some growth with top rents increasing from £35 to £37.50 per square foot in Shoreditch and £35 to £39 per square foot in the Docklands.
“Change in rents within London varies hugely between different sectors within the market and this tends to be governed more by level of supply than demand,” says Eugene O’Sullivan, director at Morgan Pryce. “Mayfair has had a low level of supply for a long period, hence why rents are so high, whereas in areas where more space is available one can expect rents to fluctuate more often depending on the extent of demand.”
A major reason for London offices increasing in value is because so many international companies are looking to get space in the capital. BlackLine Systems are currently expanding their European-based team and despite the higher rents London is still the popular choice. This is because London is considered one of the most risk-averse cities within Europe. This naturally appeals to many international organisations with an extensive European-based clientele. Offices in Central London are likely to always retain a high level of demand which will result in offices maintaining value.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.