London office rents are set to reach historic high by 2018

London office rents are set to reach an historic high by 2018, fuelled by demand from the technology, media and telecoms (TMT)  sector. Demand for office space by technology and media firms across central London was more than double of the finance sector in 2013, with major deals signed by Google, Amazon, Facebook, Twitter, News Corp, and Ogilvy & Mather. According to data from Knight Frank, record levels of overseas investment are helping London build its reputation as a global hub. Geographically, it is not just the City and the West End that are seeing a massive surge in demand; take-up in Docklands increased by nearly 20 per cent last year, while completely new districts are emerging which include London Bridge, Battersea and Nine Elms.

Stephen Clifton, head of Central London at Knight Frank said: “London’s office market rebounded last year, and the momentum is set to continue. As well as a rising economic tide, the capital is set to benefit from upcoming infrastructure projects like Crossrail and the Northern line extension.”

“Also, entire new districts are emerging like London Bridge, Battersea and Nine Elms, where offices, residential, retail and leisure, sit alongside each other, as London transforms into a Manhattan-style live-and-work city.”

Prime rents in the City rose by 9.1 per cent to £60.00 per sq ft year-on-year, driven by a 40 per cent rise in office take-up to 8.1 m sq ft and the forecast is for City rents to rise to £65.00 per sq ft this year, and to £75.00 per sq ft by the end of 2018, an increase of 25 per cent.

In the West End, prime rents increased by 2.6 per cent to £97.50 per sq ft, as take-up rose by 46 per cent to 5.0 m sq ft. The forecast is for West End rents to rise to £105.00 per sq ft this year, and then to £120.00 per sq ft by the end of 2018, an increase of 23 per cent. Take-up of office space in Docklands increased by 19 per cent to 564,000 sq ft with deals including KPMG, HSBC, and Shell.

The figures show that the investment volume for the central London office market hit a record high of £19.6 bn, an increase of 42 per cent on 2012, and 14 per cent greater than the next highest year which was 2007.

James Roberts, head of commercial research at Knight Frank said: “The figures demonstrate how London’s economy is successfully rebalancing away from finance. The Technology, Media and Telecoms or TMT sector accounted for nearly 4 million sq ft of take-up in 2013, which is more than double the 1.9 m sq ft figure for the financial sector.

“This is nearly a complete reversal of the situation in 2007, when we saw 3.7 m sq ft of finance take-up, and 2.0 m sq ft of TMT deals. Moving forward we see more diverse demand coming through as the economy continues to strengthen, like ‘Fin-Tech’ firms, who straddle the worlds of finance and technology.”

Philip Hobley, head of West End leasing, Knight Frank, said: “A lot of firms in 2011 and 2012 were put off launching office searches by the worrying economic news, but there was more confidence around in 2013, hence the 41% rise in take-up.

“With the vacancy rate already low by historic standards and on a downwards trend, many of those launching office searches this year and next are going to be surprised by how limited their options are, and this will generate competitive bidding for the best quality buildings.”