British Land has acquired a prime office location in London’s West End, in order to take advantage of the increased demand for office space.

The property was sold, in an opportunistic deal, by Irish developer McAleer & Rushe.

At present the building is only 93,000 square-feet of office space, but the redevelopment involves the construction of new space.

This came as British Land gained planning permission to construct a further 39,000 square-feet of space in 2009.

The final cost of the redevelopment is expected to be approximately £100million.

Once completed, the new space will contain office space as well as some retail units on the ground floor.

All of which is thought to bring substantial profits for British Land, once they start to lease parts of the premises.

Tim Roberts, British Land’s head of office, said, “This is a great opportunity for British Land to buy into one of the limited number of prime central London locations with planning consent at an early stage in the recovery cycle.”

“We are optimistic about the outlook for rental growth in the West End office market and expect to generate strong returns as we leverage our development expertise.”

McAleer & Rushe, the previous owners, have agreed to stay on as contractor for the development and will take a share in the profits once the development is complete.

British Land expects the redevelopment to commence this year, and for it to be complete in 2013.

In the first quarter of 2010 leasing of Central London office space saw a 100% increase, compared to Q1 of 2009.

Reports suggest that this is the case all across London, with City of London reaching an above average occupancy rate and the West End seeing a significant recovery.

Within Q1 2010 the city actually leased or sold 2.2 million square feet of office space, compared to only 0.7 million sq-ft for the same time last year.

The increase in occupancy is thought to be cause by the increased demand in property, in particular financial firms, lawyers, media firms and insurers have all increased their presence in London.

Tim Robinson, head of West End leasing for Knight Frank, said, “We have now seen two consecutive quarters in which take-up has exceeded the long-term average, which makes me confident the market has now moved into a new cycle.”

However there are some fears that this recent increase in occupancy may be tampered by the up-coming election.

Knight Frank, real estate agents, have warned that the UK General Election will probably slow the market right down, as people become uncertain about London based property.

James Roberts, a head research for Knight Frank said, “The upcoming election will dampen demand in the next three to six months, but that is just near-term political turbulence. ”

“I see activity coming back once the political uncertainty is removed, as there is a head of steam behind demand.”

Cushman & Wakefield, a leading commercial property firm, reported that during the first quarter of 2010 investment in commercial property has fell by 50%.

As the announcement of the general election happened within the first quarter, it is thought to have had an impact on the investment within the capital.

The figures show that the commercial property sector has received £1.63 billion in the first quarter of 2010, with major investments in the West End, City of London and Docklands areas.

However this is still significantly lower that the £3.0 billion that was invested into Central London office space during the fourth quarter of 2009.

In fact the 50% decrease in investment is the first drop in nearly a year and this has led some to speculate that the approaching election may have had an impact on office investments.

Some have suggested that the link is an obvious one, as the election has created uncertainty about the value and demand of commercial office space.

Whereas others have suggested that the slump in the market may just be due to the weak value of the sterling in recent months.

However, within the second quarter the decrease seems to be levelling off and in fact office investments in some areas have seen a very clear growth.

Nevertheless the market has still not recovered in entirety, as a a lot of investors are staying on the sidelines until the election is over.

British Land had previously established a significant London based deal with the Macquarie Group, Gill Jennings & Every LLP and Dickson Minto for 256,000 sq-ft of office space.

Now with similar lease agreements, British Land has reached a staggering 92% occupancy rate.

The real estate company has said that among the properties leased are the 117,000 sq-ft and the 89,000 sq-ft properties that are within London’s West End and the City of London.

Although office space is still available in these two buildings, 57% of these properties are now occupied by London based businesses.

Tim Roberts, Executive Director and Head of Offices, said, “The level of letting activity in the London office market has increased significantly in the first quarter.”

“We’ve seen rental values firming with all of our recent deals accretive to value.”

Individual lease prices have not been disclosed. However the new leases have been set at a minimum of 15 years, and rental income is expected to exceed £19 million.

The company has completed five new office buildings within the last two years, and despite this increase in supply there has still been a significant level of interest in vacant office space.

Mr Roberts said, “We continue to see good levels of interest in our remaining space and are optimistic about the outlook.”

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.

The office rental market was seriously affected by the recession because businesses became reluctant to spend money on renting new office space.

But now, after two and a half years of decline, there is finally a price increase in the rent of commercial properties.

Different areas within London, such as Canary Wharf and the West End, have been affected by this significant rise in rental prices.

Although this recent increase in rent does not represent a complete recovery, £69.50 per sq ft in 2007 compared to £47.50 per sq ft at present, some have suggested that this may indicate a recovery from the recession.

James Gillett, director of NB Real Estate, said: “This is a phenomenal recovery in rents in such a short space of time. It is not normal to see rents jump so dramatically but there has been little that has been normal about the commercial property market or the City of London over the last two years.”

It is believed that such a rise may be due to the lack of available office space within the capital. If so landlords could capitalise on the demand and as a result office rental prices may continue to rise.

The new tenants they have signed will help Threadneedle obtain an increase in rental income by £258,000.

Marketing information service provider Warc agreed on the lower and ground floor offices, a total of 4,408 sq ft, for five years. They will pay an annual rent of £83,695. Phil McIntyre Entertainments took a ten year least on 1,924 sq ft on the third floor, reportedly paying£83,695. Pleasurerealm will take the fifth floor for £64,047 on a ten year year for 1,924 sq ft.

Threadneedle were represented by Savills and DTZ during the lease signings. Associate director of Savills, Mark Gilbart-Smith said, “These three lettings highlight the strong level of demand for good quality, well located office space in central London.”

They expect the rents to increase throughout 2010 as potential tenants compete for space, which is rapidly dwindling.  Chief executive for Derwent, John Burns said “We should see positive rental growth this year,” in a  telephone interview with Bloomberg. Derwent recently reported a 20% increase in  net income from property, helping reduce the overall losses made by the company this year.

The credit crunch had put a halt on many potential developments over the past couple of years, especially if they didn’t have tenants lined-up and paid for. This reduced vacancy rates in Central London as the UK recovered from the recession, starting in the City of London area and the West End. Competition for space meant that landlords and developers were able to charge more and offer less incentives to desperate tenants. Derwent have cut their own maximum rent-free periods from one full year to ten months in the past six months.

John Burns also felt that the increase in business property tax rates would boost demand for less expensive space. The taxes on business property are predicted to double in areas such as Mayfair and St James.

Derwent currently charge an average of £25 per square foot for their offices in the City of London and the West End, in comparison to £65 for office space in Mayfair and St James, among the world’s most expensive locations for office space.

They are also hoping to add around 270,000 sq ft of office space to their portfolio, through renovations and new developments over the next two years. New developments in office space are in high anticipation as there was so little new construction during the recession.

The firm, who owns office property in the City and West End areas of London, announced a 9.8% rise in the value of its property portfolio over the last half of 2009. The figures partly offset the 12.3% drop in the first half of 2009, which left the portfolio down 3.3% for the whole of 2009. Derwent had previously reported losses of £34.9 million for 2009, which was an improvement on the £606.5 million in 2008. Property values in 2008 had also dropped by 22.1%.

However Derwent London’s chief executive, John Burns, believes the pick -up in business again is due to the West End being a “sweet spot” in the office space market in comparison with other areas of the UK which are still struggling after the recession. He commented “London is doing well but it is almost two countries. We know there is a lot of trouble out of town,

“The first half was extremely bad for everybody but the second half has seen a strong clawback. It was a year of two halves.”

They plan to take even further advantage of the upturn with the refurbishment and new development of five new projects in the capital over the next two years at least.

Other property firms and landlords have reported similar activity in the area, proving that these areas are good places to focus business on in the office space industry.

Ealingcross is based at 85 Uxbridge Road, Ealing in west London. It is owned by Neptune Land and Standard Life Investments’ Life Property Fund, represented by Montagu Evans and DTZ. It was completed last autumn, promising to bring West End standards of office space to west London.

17,213 sq ft of the new development has been signed for by A2 Dominion, a housing association. They are reported to be leasing the office space at £29 per sq ft on a 10-year lease. A2 Dominion were represented by Jaggard Baker during the transaction.

Ealingcross is a prime town centre development and offers Grade A office space, as well as excellent transport links and access to amenities in the area. It is part of an overall plan to redevelop the Ealing town centre areas with many new commercial and residential schemes.

“Ealingcross is an impressive new development with excellent green credentials that is set to breathe new life into the office market in West London” say DTZ on their website.

It offers floor plates of up to 18,000 sq ft, something which is in high demand in London. It offers an ideal and interesting alternative to the usual locations for office space in the West End, City and Canary Wharf, without a quite so hefty price tag usually found in those areas.