Maturing TMT sector fuels demand for office space in Central London ⁰

The Technology, Media and Telecoms (TMT) sector was the largest source of demand for office space in Central London in 2015, for the fifth consecutive year finds the latest Knight Frank London Report, Canary Wharf is set to have the strongest Central London office rental growth in 2016 with an increase of 12.8 percent. This is followed by Shoreditch at 10 percent and Midtown at 9.6 percent.  Affordability is the main driver, along with the development of Crossrail, integrating Canary Wharf with the rest of Central London, and a general shortage of available offices across London pushing tenants seeking high quality affordable offices eastwards. Expansion by TMT firms is contributing to the shift, as they are increasingly seeking larger offices. Shoreditch’s increase in office rents will principally be driven by Tech sector expansion as the more mature, established heavy weight tech firms have firmly established a London rival for California’s ‘Silicon Valley’ in the area.

Rents in Shoreditch grew by nearly 24 percent in 2015, nearly double the 12 percent increase seen in the neighbouring City Core (London’s traditional financial district). Moreover, at £65.00 per sq ft, rents in Shoreditch have closed the gap on the City Core rents, which stood at £70 per sq ft at the end of Q4 2015. In 2007, Shoreditch rents were £42.50 per sq ft, about a third less than the City Core at £63.50 per sq ft.

Central London vacancy rate levels are at a 14 year low, the lowest since Q1 2001, with the West End at 3.4 percent, the lowest since 1989.

Dan Gaunt, Head of City Leasing, explained: “The gap between rents in traditional core areas and other sub-markets has never been so small.  Occupiers are making decisions based on quality of product and amenity, availability of scale, adjacency of workforce and not by postcode.”

James Roberts, Chief Economist, added: ”What has surprised everyone is that Shoreditch office rents have got so close to those of the City Core. Everyone assumed the tech firms could not afford rents that high. However, the more successful start-ups from five or six years ago have matured into larger, established companies with deeper pockets.

“They now need bigger, modern, high quality offices, and they can afford to pay to get what they want. It’s what happened in Silicon Valley; but there the process took decades, in Shoreditch it has happened in a few years.”

Click on the link to download the new Knight Frank London Report which was launched at the firm’s annual Central London Breakfast yesterday.