December 15, 2015
Rent, rates and service charges for office space in established Greater London office locations such as Croydon, Brentford and Uxbridge are typically over 50 percent lower than the cost of equivalent space in Central London locations such as Victoria, Marylebone, St Paul’s, Liverpool Street and Canary Wharf, Carter Jonas’ latest research claims. Increases in rents and business rates costs over the last five years, and the erosion of the stock of office buildings in some areas of Central London, as a consequence of redevelopment to higher value residential uses is reducing tenant choice and these factors are leading some occupiers to adopt new strategies to reduce their property footprint. Agile working and hot-desking are becoming popular ways to reduce the amount of space required to accommodate an organisation’s business operations the Tenant Advisory and Research Teams at Carter Jonas have found.
Occupiers are also increasingly questioning the need to retain all of their business operations in Central London. The relocation of back office/administration functions outside Central London, while maintaining a reduced presence in Central London for ‘client facing’ operations, is becoming a more talked about solution intended to limit the negative impact of a full relocation on existing staff commuting patterns, in order to retain key staff.
The completion of Crossrail in 2018 is likely to catalyse the migration of some rent sensitive tenants from Central London to areas such as Reading and Maidenhead. However, an exodus from Central London’s business districts to the Thames Valley on the scale of the 1980s is unlikely says the report, for several reasons; firstly in a growing, knowledge based, economy, where employers are having to compete to recruit and retain a highly skilled workforce, it is increasingly the case that Central London is the area of the UK with the largest and most diverse pool of talent and, secondly, new business districts on the periphery of Central London are emerging including, for example, Battersea, White City, Old Oak Common, Wembley, Wood Wharf in Docklands and Royal Albert Docks at Silvertown, albeit many will not be ready to receive tenants until the first wave of new office developments complete in 2018/2019.
These areas are each undergoing substantial investment in new transport infrastructure and housing stock and will, when complete, offer a very credible alternative to office occupiers that wish to relocate from costly Central London business districts while retaining a presence in London, at lower cost, in locations that will be accessible and that will offer lower cost housing – factors that will be key determinants in attracting and retaining the workforce of the future.
Until the new developments that are currently under construction in the aforementioned areas are complete, Central London based tenants that wish to expand, or are facing a lease expiry or rent renew, will, for the next couple of years at least, continue to bear the pain of increasing rents and declining choice in the wake of short term supply-side constraints.
Since the beginning of the year, record rents continue to be achieved in many of the sub markets that form the Central London office market, including the West End – £180 per sq ft at 8 St James’s Square, SW1, Midtown – £85.00 per sq ft at 1 Strand, WC2, The City – £90.00 per sq ft at The Leadenhall Building, EC3, East City Fringe – £70.00 per sq ft at The Steward Building, E1 and The South Bank – over £90.00 per sq ft at The Shard, SE1. Tenants will also face another significant above inflation increase in their property costs when the business rates revaluation comes in to effect in April 2017.
To download Carter Jonas’ Commercial Office update Q4 – 2015 guide to rents and rent free periods in central London click here.