With six million square foot of new office space due to complete by 2018, the equivalent size of the 162-storey Burj Khalifa – the world’s tallest skyscraper – and a further 6.8m sq ft proposed for the City Core alone, the lettable office space in the City market is set to flood, according to Cluttons.
Despite the large volume of new stock planned, the City accounted 38% of Central London’s total take-up of 3.4m sq ft in Q4 2015.
Current prime City Core rents sit at £70psf but this reflects nil quarter-on-quarter growth and one of the smallest submarket annual rental growth (7.7%). In comparison, neighbouring Eastern City Fringe and Canary Wharf markets, showed quarterly growth of 4.8% and 5.6% respectively and 22.2% and 26.7% annually.
However, Eastern City Fringe and Canary Wharf markets have considerably more modest rents at £55psf and £47.50psf, 21% and 32% lower than the Square Mile.
Ralph Pearson, Cluttons head of Central London agency, commented, “The rate of rental growth across Central London, as a whole, has probably peaked but will sustain for the near future in submarkets where the vacancy rate is low.
“Victoria, however, bucks this trend. The new stock coming through is of a high quality and is set against a backdrop of a supply starved market, which is not only supporting rental growth but also new peak rents.
“In the wider West End market, by far the biggest anomalies in terms of rental growth have been seen in the Sloane Avenue and Kensington areas where, again, supply is highly restricted.”
Faisal Durrani, Cluttons head of research, added, “The next 24 months will prove interesting for the City occupier market with a substantial amount of space coming to the market. The worrying factor is that less than half of the six million square foot under construction or due to complete in two years has been pre-let. Depending on your view, this is a glass half-full or half-empty scenario. Rental values are likely to remain supressed, but occupiers have a great opportunity to lock-in favourable terms and tailor fit-outs exactly to their requirements, so we could be on the cusp of a spike in occupier activity in the heart of the City.
“Further east, New Phase (formerly known as Wood Wharf) is amassing a large supply pool of its own, with roughly eight million square feet proposed. Its position at the bottom of the property price spectrum, despite the spectacular rent rises recently, means it is well placed to absorb any occupiers driven out of the City.”