London’s West End to see the return of the pre-let with 40% growth in rents
29 Jan, 2010, London
Cushman & Wakefield, the property consultant, has forecast that prime West End rents will rise by 40% between now and 2012 - a return to levels above £100 per sq ft - and that lack of supply will lead to a return in pre-letting activity.
Despite the worst level of take-up since 1991, the last quarter of 2009 witnessed 740,000 sq ft of take-up in the West End - the highest recorded since Q2 2008.
"Occupiers are beginning to reactivate enquiries in anticipation that landlords will start to take a firmer stance in negotiations throughout the course of 2010." said Guy Taylor, head of West End office agency at Cushman & Wakefield.
Active demand has also increased quarter on quarter, and there has been a 40% upturn in active requirements in the West End over the year. Demand is expected to come from a wide range of occupier types looking to secure space in the West End, with TMT, Financial and Retail and Professional most active. (see fig 1.) Major active requirements include Bain & Co - 40,000 - 60,000 sq ft, Invensys - 16,000 sq ft and Mirabaud– 25,000 sq ft.
Pressure on rents will be initially driven by the lack of new space coming on-line in the West End. Just over 1 million sq ft is under construction for delivery in 2010 and, beyond that, of buildings over 20,000 sq ft, there are currently only two buildings under construction due for completion in 2011 (7-5 Baker Street, W1 and UK & European Investments Ltd, 1 Kingsway, WC2 and just one building in 2012. (Crown Estate’s - The Quadrant, Regent Street, W1)
Guy Taylor, continued "The dearth of new space heading into 2011 will see the return of pre-letting, as the imbalance between supply and demand increases. For many occupiers, pre-lets will become the Hobson’s choice."
This should translate into an increase in letting activity in 2010, albeit from a low level, which should strengthen as the year progresses against an improving economic background.
While prime rents remained stable at £75 per sq ft during the final quarter of 2009, effective rents started to recover and increased by 5% over the quarter. This is the first uplift since the end of 2007. With incentives starting to move in, it will only be a matter of time before headline rents start to increase.
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