London faces office shortage

A sharp fall in the availability of central London offices is rapidly creating a landlords' market in the capital. Rents are rising faster than expected and incentives such as rent-free periods are disappearing.

In the City, which suffered more than any other area of London from over-building in the boom of the late 1980s, the vacancy rate has fallen from 13 per cent to 9.5 per cent.

As a result rents are pushing ahead after four years of decline. Top rents in the West End, where shortages are most acute, are now about £42.50 for good quality new buildings.In the City they have risen from £30 in 1993 to about £32.50.

While these compare with rents in the late 1980s of £70 in the West End and £65 in the City, the improvements are the first concrete good news for the industry in almost half a decade.

Stephen Hubbard, in Richard Ellis's West End office, believes rents coulds reach £50 per square foot in the top areas of Mayfair and St James's by the end of the year. In the City they are expected to touch £40.

"In some ways the market is similar to that of 1987, when there was strong take-up of prime quality space without any new buildings becoming available" he said.

Only two or three schemes are likely to come on stream in 1995, and with the exception of a 55,000 sq ft project in Knightsbridge all are relatively small.

Henrietta House, a 100,000 sq ft scheme north of Oxford Street, is the only sizeable building available in the area and that is only still vacant because of its position away from the West End's prime locations.

According to Richard Ellis, only 7.4 million square feet of offices are on the market in the West End and only just over 1 million of that is new space. Last year, 1.1 million square feet of new space was taken up by new tenants, suggesting that the supply will run out before the end of the year.

The picture is broadly similar in the City, where 1.8 million square feet of new space remains compared with take-up last year of 1.6 million. In Holborn, there is little more than one year's supply of new space.

John Slade, in Richard Ellis's City office, thinks only 200,000 square feet of new offices will come on stream in the Square Mile in 1995, and probably no more than 750,000 square feet in 1996.

One reason for the mis-match between supply and demand is thought to be the extent to which developers were burned by the recent downturn in the property market. Many developers are waiting for hard evidence of higher rents before they take the plunge.

A further inhibiting factor is the absence of bank finance in the market, the main reason for the explosion of development in the late 1980s.

Many of the banks that supplied funds for the binge of building seven years ago were from overseas, and problems in the domestic property markets of France, Germany and Scandinavia are limiting further funds from those sources.

With funds more difficult to come by, the market could come out of the current cycle in stronger shape than last time, because competition for a limited number of buildings will keep the upward pressure on rents.

That could finally give a fillip to the quoted property sector, which included some of the worst performing shares last year as expectations of higher rents - and therefore higher capital values - were disappointed.

The figures from Richard Ellis do not include London's Docklands, which was one of the biggest beneficiaries of last year's squeeze on space in the capital's traditional office locations.

Agents for Canary Wharf, Docklands' most important development, deny that they have taken space off the market in the hope of securing higher rents in a year or so, but they admit they are holding out for relatively high rents, knowing that sooner or later they will achieve them.

The top floors of 1 Canada Square, Britain's tallest building, are currently on offer for £40 per square foot, as much as prime space in the West End.

Last year 850,000 square feet of space was taken up in the development, reducing the vacancy rate to about 25 per cent, with high-profile occupiers such as Morgan Stanley and BZW signing up for large offices.

One of the attractions of Docklands is that, as new lettings, its offices qualify for much lower business rates than buildings in the rest of the capital, where notional rate reductions have been capped to subsidise transitional relief for higher rates elsewhere in the country.

According to agents, this could make total occupation costs in the Docklands as little as half those in the City and West End.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?