Central London Overview

Published: February 2005
Source/Company: Nelson Bakewell

Abstract:
London West End Office Landlords Believe 2005 Will See New Rental Growth

The latest Central London Overview from leading property consultants, Nelson Bakewell, reports that the continued shortage of good space in prime locations means that 2005 will bring increased competition and rising rents.

Nelson Bakewell Agency & Development Director, Tracy Collins, comments: “Confidence remains strong among landlords in anticipation of further rental growth during 2005. We foresee the continuing erosion of rent-free periods and incentives with availability of good quality space becoming increasingly scarce in the core areas”.

“These trends are likely to have a knock-on effect in other locations in the capital. Collins notes: “As occupiers look at alternative locations, rents are likely to rise in the more fringe locations. With little new development in the pipeline, we expect to see vacancy rates sharpen”.

The market for property investments in prime London locations paints a similar picture with too much competition for too little product. Nelson Bakewell Investment Consulting Director, Peter Trinder, comments: “Demand from UK funds for Central London Office Investments remains very strong. Improving tenant demand and a shortage of Grade A stock have put West End investments at the top of many funds’ shopping lists.

“During 2004, yields on some West End office investments sharpened by as much as 0.75%. Whilst this yield shift was less marked in the City there has also been positive downward pressure on yields here. Looking ahead, we expect capital growth in the West End to come from rental growth rather than a further yield shift.

This improvement in yields - particularly for Grade A space where there are distinct shortages - has kick-started a number of development schemes. Nelson Bakewell expects to see a significant number of potential site sales coming to the market in 2005.