Developer Derwent London Plc has predicted an increase in office space rent prices in central London this year.
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.