View from City Road: Happier days for office landlords

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Anyone who thinks that the London stock market has taken an eccentric view of the real economy would be forgiven for thinking that the property world had taken complete leave of its senses. Share prices in the sector have soared while rents, which ultimately determine the value of buildings, have been as flat as a Dutch polder.

As a discounting mechanism share prices are expected to look into the future, but plainly a serious divergence between hope and experience can only go on for so long. Eventually it should be expected that the City would look over the top of its rose-tinted spectacles and note that it had not seen a crane on the skyline for a good four years.

Investors who have driven property shares up to record levels will therefore take comfort from a spate of New Year statistics from the surveying industry suggesting that happier days are round the corner.

Having fallen by 15 per cent in the first six months of last year, central London rents have been stable since and now look likely to rise again. That reflects the fact that although 12 per cent of the capital's office space is empty much of that overhang is well nigh unlettable.

Big professional firms who want to house their staff in comfort with miles of computer wiring tucked neatly out of sight are finding it increasingly difficult to find any suitable space, regardless of price.

After four bleak years, central London landlords are calling the shots again, rent-free periods are a fond memory and the developers are dusting off their plans. The market may not be so out of touch after all.