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Second-hand not second-best

11th February 2014

Second-hand not second-best

In the current office and commercial property market in London, landlords and investors are looking to maximise their income and returns as much as possible, and as quickly as possible. The market has now swung into the landlords’ favour due to the restricted availability of prime office space in the capital. As the economy improves, demand is increasing from tenants who either want to start up in London or increase their presence there. However, construction, which has been put on hold for so many years since the 2007/2008 crash, has a long way to go before it can catch up. 

This leaves people looking for alternatives. Already we have seen areas previously overlooked by businesses become the place to be. The more tenants arrive, and the higher quality of those tenants, the more investment and regeneration occurs in the area, leading to even more tenants and a rise in rents. However, there are few of these areas left and some may not be suitable for a particular sector. 

The result? Businesses and investors alike are broadening their horizons and looking beyond the few impressive shiny, new buildings and instead to buildings that might previously have been overlooked. Investors are thinking imaginatively as to how they can transform their buildings to attract the very best tenants, including those in the financial sector, who traditionally would see themselves located in the city’s modern skyscrapers. 

Upgrade and refurbishment are quicker and often cheaper than newbuild, and although retrofitting can be difficult, particularly in terms of green energy, such buildings can still be worth the investment if top rents can be achieved for them – and the increase in capital value is not to be sniffed at either. Across the board, it is anticipated that rents will increase over the coming year and beyond, as much as 10% a year according to some research figures, as reported here recently. With the promise of good rents and buildings that keep their value, investors will likely to take the leap into refurbishing their buildings to reap financial reward. In addition, there are often fewer delays with refurbishments, partly due to fewer planning issues. 

However, while the demand is high and supply is low, the rents are likely to remain high too. If the supply is addressed – partly by new properties coming up for completion such as the Leadenhall building, partly from new buildings not begun yet, and partly by these older, traditional London properties offering an alternative to those who need a lot of space – then the rents may not be as prime in a few years’ time. The year 2012 saw a low level of supply, but already 2013 experienced a great improvement, with one million square feet of space being made available, double the amount during 2012, and this trend looks likely to continue, until the balance of the scales of supply and demand tip once again. 

This news was brought to you by Morgan Pryce, 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.

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