A lack of supply in office space in the capital has pushed the value of available spaces up by 43% according to Knight Frank. They are expecting office rental costs to increase by 19% due to the shortage.
London’s internationally facing economy is starting to benefit from the beginnings of growth in both financial markets and international trade. However the recession led to less new development and building in the capital, which in turn is now causing new difficulties for the extra business coming in, as firms struggle to find space.
This will also cause an increase in value over the coming year, as well as the fact that more institutional property funds are looking to invest after the recession. The rebound in prices should be sustainable according to Knight Frank – the current market activity is similar to previous years and there is plenty of international interest in the city.
Figures from the Knight Frank report show a forecast of rent increases of 19%, mainly in the City and West End areas. The high demand is expected to push rent prices up to about £67.00 per sq ft by 2014, a 52% increase in five years.
It also shows capital values are due to increase over the next year by about 43%, due to falling yields and the increase in rent prices. Competition is set to be fierce in 2011, with only 1.1m sq ft of new development and building in the speculative planning stage.
Record growth is predicted in prime West End areas, again due to the lack of new builds and developments to meet new and up-coming demands after the recession. Rents in the area will rise to about £72.50 per sq ft, an increase of 11.5% from 2009.
“Due to the lack of new development starts across London in the last two years, supply will come sharply under pressure in the next two years. In fact, we are expecting a supply crunch in 2011, as an inadequate development pipeline collides with strong structural demand and tenants expanding in response to a stronger global economy,” says head of City leasing for Knight Frank Will Beardmore-Gray.
Although it will take time for London to recover from the recession, the high demand will help fund future projects and developments to allow for continued growth again. It is certainly good news to see the capital becoming so popular again.