London office prices to increase by 43 per cent

Due to a lack of availability office prices in London are expected to rise by approximately 43%.

The forecast by Knight Frank estate agents predicts that the average cost of renting an office within London will rise from £44 per sq ft to £52.50 per sq ft by the end of 2010.

Although the average price for offices varies across the city, increases are expected within specific London areas.

In the City of London office rent is expected to rise by 19% this year, whereas in the West End this is only an 11.5% increase. However, this means that the cost will be £72.50 per sq ft rather than the current £65 per sq ft.

Knight Frank estate agents have suggested that this trend can be explained because of an increase in the demand for office space.

As certain businesses have started to expand they have invested in office space, which has meant that the overall supply of office space on the market has reduced.

And with a 26% decrease in the construction of new offices the availability of London office space is expected to fall by 14% within the year.

With an increase in the demand for offices and new builds the price increases seem inevitable.

Ronnie Nathan, chairman of Capital & Overseas Holdings, said, “Now is a worse time to invest than at the peak of the market in 2007 because of the lack of choice. It has driven values right up and yields down – those with millions to spend on behalf of investors won’t find any bargains.

However some have suggested that lack of availability may not be the only cause of the increased rental prices.

It may also be the case that the techniques used to combat the effects of the recession, such as quantitative easing and reduced interest rates, may only have temporarily inflated rental prices.