London Office Space Report Predicts Strong Growth in 2015

A report published by London Office Space indicates strong growth is likely to continue in London's office space market, with rental yields likely to grow.

London Office Space Report Predicts Strong Growth in 2015 A report published by London Office Space indicates strong growth is likely to continue in London’s office space market, with rental yields likely to grow.

2014 closed with very good news for the London commercial property market, with the sector experiencing a consolidation of several upward trends that have particularly benefited the office sub-sector. These included declining vacancy rates, steady rental growth and stable yields for investors.

“According to research published in December 2014 by investment trust Schroders, 2015 will be a particularly favourable year for landlords who own office properties in London,” said London Office Space spokesperson Katherine Aird. “Researchers have affirmed that over the next 12 months, the capital’s commercial property market as a whole will experience double digit growth. More specifically, the report claims that growth will be driven by the office rental market, which is set to be the best performing sub-sector during 2015.”

 The main trend expected to dominate the office rental market in London will be accelerated rental growth. Researchers affirm that the combination of two main factors is behind the anticipated growth in rental values. Firstly the British economy is anticipated to continue its upward swing during 2015. This fact is set to prompt many occupiers to relocate or to move into new and larger premises, causing increased demand for office floor space in London. A report published by Oxford Economics claims that over the next 5 years, nearly 82,000 new office-based jobs will be created in central London, increasing demand for suitable office floor space. Secondly, there have been comparitively low levels of new development in London office market over the past two years. Very few new developments will be completed during 2015, and the vast majority of new floor space that will be released this year has already been pre-let. This fact, together with a strengthened economy, is expected to put pressure on the value of existing rental properties and to bring down vacancy rate levels, which may reach 4.5 per cent during 2015.

“An important trend for 2015 relates to the industry sectors that are likely to drive rental growth across London’s office market,” continued Katherine Aird. “Market analysts affirm that the majority of deals will involve companies in industry sectors like finance, law, media, technology, and accountancy. In the West End, take-up will be led by the Telecommunications, Media and Technology (TMT) sector, which is expected to account for nearly 25 per cent of all deals. This industry sector will be followed by the business, professional, and consumer services sector and by companies operating in the insurance, financial, and leisure industries.”

Research studies conducted by real estate firm Savills suggest that 2015 will be the year in which the office rental market in London will move from recovery to stable growth. Office properties in the City and the West End have evidenced that they are well on their way to reaching pre-recession values. During 2015 we can expect to see office floor space in other areas follow suit, generating increased demand, lowering vacancy rates, and driving rental growth.

Rental growth is expected to become a reality across London. In the City, average prime rents are expected to increase moderately and to reach £70 per square foot, whereas in the West End average rents may reach £115 per sq ft. Overall, average rental value value increases will be in the region of 4.3 per cent.

The 2015 forecast also predicts that well-established office markets will start to face competition from areas that until now were considered secondary office locations. For example, what in 2014 were promising office locations will become highly sought-after areas where rents will slowly but steadily climb towards pre-2007 levels. According to Schroders, some of these areas include King’s Cross, Farringdon, and the South Bank. Other areas that are set to become established office markets include Paddington, Victoria, London Bridge, Nine Elms, Regent’s Place, and the area around Battersea Bridge and Vauxhall. In areas like Shoreditch, MidTown, and Stratford, increased demand is expected to come from firms in the creative, media, and IT industries.

Lastly, researchers predict that during 2015 serviced office space will become a popular option among London firms, and that this trend will continue until 2017, when more speculative developments are expected to be completed.

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