Land Values Rise With Higher Returns than London Office Rents
Commercial property developers in London could earn more from land appreciation than from renting London office space – as land values across the capital begin to increase.
According to a report on Bloomberg, Great Portland Estates saw the value of their 1.3 acre plot in Mayfair increase by 10% between April – June 2012. This increase is reportedly nearly double the return that a successfully let London office development would generate in the whole year.
But what is causing this upswing in land values? Well experts believe that it stems from a lack of lending to construction companies and a lack of new developments – making those sites suitable or ready to develop increasingly attractive.
This same balance of demand and supply is also credited with driving up the cost of securing London office space – with rents in the West End of London recently being reported as the second highest in the world after Hong Kong.
While commentators are highlighting Central London as an attractive investment centre, the capital required to play at this table is “pretty much limited to those with large equity checks, sovereign wealth positions or very strong balance sheets who can bring on board corporate debt” according to the development and investment arm of Brookfield Office Properties Inc.
Given the cost of developing new London office space it is clear to see that those behind the schemes will need to charge high rents in order to deliver a return – potentially restricting the types of businesses able to enter the market.
With this in mind it is perhaps no surprise that Serviced Office Space is continuing its surge in popularity – as businesses look to secure the London office space they need on the kind of flexible terms that traditional long term, capital heavy leases are unable to provide.
If you are looking to move your business in to a service office in Central London then Londonoffices can help. Call one of consultants on +44 (0) 203 826 8139 and begin your search.