Leadenhall record raises the question – is this the top?

If the London office market hadn’t hit the top in July, it was surely very close to hitting it. Just over three months later, the question is: has that high-water mark now been reached?

As we report on page 4, British Land and Oxford Properties have just signed up US insurance company FM Global to take space at the Cheesegrater for not far off £85/sq ft - above the circa £80/sq ft paid by Arma Partners at Irvine Sellar’s Shard earlier this year and way higher than the pre-recession City peak of £69.50/sq ft.

Now, this is clearly not your run-of-the-mill office block. It is a skyscraper so iconic it has its own nickname, so it will not necessarily dictate the next tranche of prime City lettings - and, indeed agents are currently quoting prime City rents of £61.50/sq ft.

But anomalous though such a deal is, don’t expect it not to exert any upward influence on rents - it could well set the tone for activity at other statement schemes such as 100 Bishopsgate and the Pinnacle, at the very least.

And that is just in the City. What of Midtown and the West End? In real terms, rents hadn’t risen since the late 80s/early 90s. We are now hearing of £130/sq ft-plus deals. Are they too reaching a ceiling?

Lots of companies like Great Portland Estates are now noting (somewhat euphemistically?) that “value in London offices is harder to find these days”. Meanwhile, the Qataris have just spent a whopping £1.1bn on HSBC Tower.

No wonder interest in the fringe has grown so sharply, with some investors now even beginning to call what used to be referred to as fringe City prime. With other areas, it may only be a matter of time.

Take London Bridge and Southwark. Companies are relocating from pricier environs and a growing number of big names are moving in, such as Omnicom, which has taken a 370,000 sq ft chunk at Bankside. Forget TMT, these are what Americans call the TAMIs (Technology, Advertising, Media and Information companies) and they are descending on the area en masse.

The attractions are many. The area has space to breathe, it is all new and boasts schemes such as More London, which are closer to the Bank of England than some offices within the Square Mile’s borders.

Developers are also looking beyond central London, to the east in particular. Derwent London, for example, more or less created the buzz around Tech City in and around Shoreditch and Silicon Roundabout at Old Street. Now companies like them are sparking similar excitement around Whitechapel, where secondary offices are getting flashier by the minute.

Why? Because it is within spitting distance of the City, cheap as chips by comparison and can be easily walked to by Liverpool Street commuters. Plus, as a result of the Square Mile hitting or nearing its peak, values are rising, while still allowing a good ROI in the right properties. What’s not to like?

So, yes, Leslau may have bottled out of calling the top of the market, but that doesn’t mean it wasn’t the top… and if it wasn’t then, it looks as though it could be getting close now.