West End rents ‘will be the most expensive in the world’

Knight Frank predicts further rises in 2008, while City of London occupational market suffers.

Office rents in London’s West End will continue to rise but City of London rents will decline by the end of next year, said Knight Frank in its annual Central London Office Market report this week.

The property services firm predicted that the prime West End headline rents will increase by 5% to £115.50/sq ft by the end of next year – making it the most expensive place to rent office space in the world. It said prime headline rents in the City of London meanwhile would remain unchanged at £63.50/sq ft buy the end of the year and decline by 1.5% to £62.50/sq ft by the end of next year.

John Snow, Head of central London at Knight Frank, said: ‘The city office market in the medium term will be defined by how much potential demand converts back to active. In the West End, the eclectic mix of tenants combined with shortages of supply should keep the market in check. Prime rents in the West End will continue to grow, albeit at a marginal rate’.

Knights Frank’s James Roberts Head of Central London research said: ‘The City has a challenging two years ahead, as the balance of the market is tipping in favour of the tenant. But we are not seeing the market flooded with sublet space from banks, which previously occurred in 2002 and 2003.’

In the investment market Knight Frank said prime yields in Central London would rise by the end of this year, in the West End yields to 5.25%, compared with 5% at the end of last year, and in the city to 5.75%.

On the residential development market Knight Frank said the ‘super-prime’ market will continue to perform well and would see ‘growth in the face of very limited supply in this tightly defined market’, although it said sales volumes would likely to be depressed compared with previous years, which were exceptional.

Property Week - 08.02.08