Hammerson, the leading property group, said yesterday that the worst of the downturn in the London office market was over, with clear signs of stabilisation now apparent.
Reporting interim results, John Richards, chief executive, said there was an "encouraging increase" in activity, even if it had not yet led to leasing deals. He said that occupiers had re-activated searches.
"People had been sitting on their hands because of the economic uncertainty and because they saw rents coming down. They are now thinking that actually it is a very good time to do a deal," Mr Richards said. He said rents in the City had dropped about 15 per cent on the first six months of this year to some £45 per sq ft. At the peak, in late 2000, rents were some £60 or £65 per sq ft for prime real estate in the square mile. Currently landlords have to offer occupiers 30 to 36 months' worth of rent-free occupation to secure a significant new tenancy.
"There are positive signs. It will lead to the market stabilising. I don't see further decline. There will be stabilisation towards the end of this year but we won't see a resumption of growth until the back end of 2004 or 2005," Mr Richards said.
In real terms, he said rents were now cheaper than during the slump of the early 1990s. That downturn saw many property companies go bust but this time, Mr Richards said, balance sheets in the sector were much healthier.
He said, however, that lower quality office space in the City would not find tenants and that these buildings will probably be converted into residential accommodation.
Hammerson's exposure to the London office market is just 4 per cent of its portfolio. The company, which is spread across sectors and has property in France, reported strong rental growth of 9.5 per cent group-wide, for the six months to 30 June. Pre-tax profits were up 27 per cent to £47.4m.
Net asset value grew 3.6 per cent to 779p, with growth in the retail portfolio more than offsetting a 3.5 per cent decline in the office portfolio.
"Despite slowing retail sales growth in the UK and France, demand for space from retailers in Hammerson's centres has been good and the outlook remains encouraging," Hammerson said.Reuse content