London Prime Office Rents Now Higher Than 2007 Financial Crisis Peak
Knight Frank reports this week that prime office rents in London's square mile are higher now than at their peak level in 2007 when the global financial crisis began.
City office rents at the end of Q1 stood at £65.00 per sq ft, compared £63.50 per sq ft in Q3 2007, around the time queues were forming outside branches of Northern Rock Bank. This is due to a combination of rising demand, falling supply, and diversification in the occupier base. Demand for offices reached 9.3 m sq ft in the 12 months to the end of March, compared to a ten year average of 6.8 m sq ft. The demand figure for 2007 was 8.4 m sq ft.
Demand for Q1 was 1.9 m sq ft, the eighth consecutive quarter of above average performance. There was 6.8 m sq ft of available office space on the market at the end of the quarter, down from 10.0 m sq ft a year ago.
Compared to back in 2007, the City office market is now seeing more activity from non-financial firms. Major deals during the quarter included tenants like HP, Expedia, and TAG Worldwide. The traditional City occupiers were still in the market though, with deals by Deloitte, Deutsche Bank and Investec.
Dan Gaunt, head of City office leasing at Knight Frank comments, "Given this landlord-friendly scenario of diminishing supply and above average demand, we see rents rising further. Prime rents could draw close to £70.00 per sq ft by year end, if the economy growth continues at its current pace."
Knight Frank Chief Economist James Roberts said, "The City is now less exposed to finance. Back in 2007, technology, media and creative firms accounted for around 14% of office deals in the City, but it has more than doubled now to nearly 30%."