New figures have shown Simon Morris that the central London office sector recorded double digital rental growth in the year to October 2015.
London is one of the most important economic centres on the planet. Many companies want to base their offices in the UK’s capital city, and demand for office space in the city’s central district is particularly fierce.
According to the Wall Street Journal, figures from accounting firm Deloitte indicate that London office space development has now hit its highest level in seven years. Furthermore over 11 million square feet of office space is currently being developed in central London – a rise of 18% in six months.
Despite increased development, demand for central London office space continues to outstrip supply. Businesses took up 3.6 million square feet of office space in the city’s central district in the third quarter of this year. A further 3.8 million square feet of office space is currently under offer in central London; this is expected to complete before the end of 2015.
The latest CBRE Monthly Index has indicated that this supply/demand ratio has pushed central London office rents to new heights. Property Wire reported that rental values in the district climbed 10.3% in the year to October 2015 – the first time annual growth has hit double digits since April 2008. In contrast London office rents increased 1% within the same span of time.
Kevin McCauley, head of central London research at CBRE, commented on the release of these figures. He said that “London’s office market has been heating up for some time now, but there is still strong business demand across the capital.”
The head of central London research went on to add: “Rental value growth has not been this sustained since before the financial crisis, and together with rapidly rising property values, landlords and investors are experiencing a booming market.” The average initial yield for the central London office market currently sits at 3.1%, compared to an average equivalent yield of 4.5%.
Simon Morris: London boom?
These figures make it clear that strong demand, coupled with supply that just can’t keep up, is fuelling the growth of the central London office market. The sustained nature of rental growth may see the office market continue to boom as we head into 2016.