Rising rents put London businesses under pressure

With office rents across London’s nine submarkets forecast to rise by an average of 13% by mid-2017, Carter Jonas said businesses were exploiting advances in mobile data and telecoms technology to reduce costs, with remote working and hot-desking now established trends.

Some firms are relocating to escape continued rent and business rates increases that are substantially above the rate of inflation.

“Tenants are acutely conscious of the need to reduce their property footprint to minimise operating costs. We are seeing many companies, especially in the legal, media and business services sectors, either reviewing their property footprint or seeking to relocate to the lower-cost peripheral submarkets,” said Michael Pain, head of the tenant advisory team at Carter Jonas.

The report predicted that office rents would continue to rise until at least mid-2017 in nine London office submarkets, when office development or refurbishments that are currently under way will begin to reach completion, providing tenants with more choice and easing the upward pressure on rents.

In the West End, rent, business rates and service charge costs have increased by up to 16% to £164.25-£217.75/sq ft/year since Q2 2014 for prime-located space in Mayfair and St James’s.
Combined occupancy costs in the City core have increased by up to 11% to £85.50-£108.25/sq ft/year during the same period.

Elsewhere, the report showed that for the first time since the banking crisis, the Docklands posted double-digit rental growth, with the average rent up 13% since Q2 2014.

Quoting rents in the east City fringe rose by up to 40% over the same period as landlords increased rents and exploited the upturn in demand for previously unfashionable office locations.

“These now represent the last few remaining areas of London where it is still possible to lease secondhand, refurbished, air-conditioned, office
space for less than £40/sq ft,” said Pain.