London rents rising

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The Independent Online

The outlook for the City of London property market is brighter than for many years, according to the latest market commentary from the Corporation of London. Foreign banks are moving to London, domestic investors are back in the market and rents are finally rising again.

The Corporation forecasts that growing numbers of international companies will move to London following Deutsche Bank's decision last year to base its investment banking activitities in the UK. Westdeutsche Landesbank and Dresdner Bank have indicated similar moves.

London already dominates Europe in the fight for trophy tenants. More than a third of the world's 500 largest companies are represented in the UK, more than in Germany, France, and the Netherlands combined.

The final figures for 1994 suggest that the potential demise of London as Europe's financial capital has been exaggerated. During the year almost five million square feet of offices were occupied in the City, well up on 1993 despite that year benefiting from forced moves after the Bishopsgate bombing.

New entrants included French and Dutch banks, with both Banque Indosuez and ING, the acquirer of Baring, taking large amounts of space.

As a result, the amount of available space in the City is now 48 per cent less than in 1992. The vacancy rate has fallen into single figures.

The most noticeable effect of the shortage is a fast, but patchy, rise in rental levels, with rents for Grade A space expected to reach almost £50 per square foot by 1998, a 50 per cent rise on current levels. Examples of sharp rises are already evident, with space at 125 London Wall, an MEPC development, on offer at £40 per square foot.

Inducements for tenants to take space are also falling away rapidly, with typical rent-free periods dropping from three years to two years and less.

Those fundamentals have encouraged UK investors back into the City market, which for two years has been dominated by overseas investors, particularly Germans. UK buyers lifted their share last year from 51 per cent to 56 per cent.