London office rent frees have widened since Brexit vote

By Paul Norman - Friday, August 11, 2017 12:20

Bloomsbury is one of the few London office sub-markets that has bucked the trend in declining London office rents according to the latest research by Carter Jonas while rent free periods in all of the London office sub-markets have widened since the June 2016 EU referendum vote.

Typical headline rents for new Grade A office space in the Bloomsbury Midtown district have risen from £68.50 per sq ft per annum in Q2 2016 to £82.50 per sq ft per annum, representing a 20% increase.

The rent increase reflects regeneration initiatives in the area and the development of new buildings such as The Avenue and The Post Building, which have set new rent benchmarks.

Carter Jonas’ report, which features data on the London office market for Q2 2017, also highlights the fact that the prime West End (Mayfair and St. James’s) sub-market has recorded the largest decrease in office occupancy costs with rent, business rates and service charge costs having fallen by 7.3% during the last 12 months. Occupancy costs are now typically £177 per sq ft per annum.

By contrast, prime City of London rent, business rates and service charge occupancy costs have fallen by 2% since Q2 2016, to £104.50 per sq ft per annum for new, prime-located, mid-rise Grade A space.

Tenants can now make a saving of up to £72.50 per sq ft per annum in rent, business rates and service charge costs by moving from a prime West End location to the City core, Carter Jonas said.

Business rates costs in Spitalfields, in the east City fringe, have risen by up to 53% to £23.00 per sq ft per annum, since the introduction of the 2017 business rates revaluation for new Grade A buildings that do not qualify for transitional relief. As a consequence, office occupancy costs here have risen to £100.50 per sq ft per annum compared with £92.50 per sq ft per annum a year ago.

Michael Pain, Head of London Tenant Advisory Team, Carter Jonas, said: “Rents, business rates and service charge office occupancy costs at Canary Wharf have remained broadly static since Q2 2016 and currently stand at £78.05 per sq ft per annum for new and refitted Grade A space, making the Docklands sub-market one of the most competitively priced London business districts.

“Rent free periods in all of the London office sub-markets have widened since June 2016 and in many parts of the West End, Midtown and City sub-markets it is now possible to negotiate rent free periods of, typically, 20-24 months for a 10-year lease. This is in sharp contrast to the market prior to the Brexit vote when rent free periods were typically 3-4 months shorter and the disparity in rent free periods between sub-markets was much more marked.

“The Brexit vote has undoubtedly weakened demand for office space from national and international companies, particularly those with sizeable ‘capital intensive’ office relocation requirements, typically in excess of 20,000 sq ft for 200 or more staff. This has had a direct effect on districts such as Paddington, Victoria, the City and Docklands which, due to their office vacancy profile, are much more reliant on occupiers with large office requirements.”

For the period to Q2 2019, rents in all London office sub-markets are forecast to decline by 10-13%.

Carter Jonas said the largest falls are likely to be in the City, Docklands and Victoria where large scale new developments are currently available, or due to reach completion in the next 12 months, and which are reliant on large occupiers seeking floorplates in excess of 20,000 sq ft.

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