Lack of Development Causes London Office Rents to Soar in Q4

Central London commercial property overview

Savills report predicts key European cities and London office rents will rise in Q4. The real estate advisor believes a lack of development will cause rents to soar in cities like London and Frankfurt.

Office space rents are set to soar in key European cities in the last quarter of 2011 according to a new report by real estate advisor Savills. The firm believes that a lack of development could lead to a major hike in not only London office rents but prices right across the globe, with London and Frankfurt both setting the tone.

Although lettings begun to pick up in Q3, a lack of speculative development in recent years means an office space shortage in key central business districts could be a very real possibility. With a rising number of businesses planning a relocation in the new year and a lack of new or prime office space in the City, businesses wishing to relocate in or to the capital could be forced to shell out much more than they’d originally anticipated.

The firm believes that increased office space demand from businesses in the IT sector, such as Google, could be partly to blame for the imminent office space shortage and the hike in London office rents.

Commenting on the report, Savills European Research Director Lydia Brissy said: “Rare and expensive new CBD office spaces might deter some office occupiers who may consider relocating into secondary areas, but CBD locations will remain the jewel in the crown for major tenants. As pipeline is very short prime rents are expected to keep on rising, for example in Stockholm where a shortage of prime modern office premises resulted in a strong rental growth in Q1 and Q2 of this year.”

The report comes just a week after British Land suggested that a London office space shortage could soon be on the cards. While reporting their half year results, the company reported that with a number of City office space leases for up expiry between 2013 and 2015, a number of sectors could get caught out over London office rents if they’re not clever regarding their office space requirements.