Commercial Real Estate – A market snapshot

Many column inches have been devoted to the recent rise in house prices and the new boom in house building but what has been happening in the commercial real estate market recently?

According to figures published last week by Cushman & Wakefield,  London was the at the top of the international pops in the first quarter of 2014, outstripping Tokyo, New York and Paris in terms of inward investment deals, attracting over £5.2 billion in the 3 months to 31st March.

The downside is that central London is now the most expensive city for tenants with an average cost of over £2,000 per square metre if the UK's very high property taxes as well as service charges and rents are taken into account. The recent slackening of planning regulations also means that some office accommodation is being converted into residential, reducing the available space for tenants and further fuelling the rise in rents.

A recent article in Estates Gazette highlighted the rather strange situation of commercial occupiers submitting sealed bids and paying substantial premiums to secure space in the most sought after locations. One agent recounted that one property was viewed by 14 potential occupiers on the day it became available and the final deal reflected a rent that was 20% above that initially expected. It seems that the TMT sector (Telecoms Media Technology) has been the London miracle of recent years and it made up 18% of all central London lettings in the first quarter of 2014.

The inevitable result is that some occupiers have been moving out of the prime West End locations and finding more affordable accommodation further East in Docklands or on the South Bank. So perhaps the answer is to acquire office assets in secondary sub-markets and wait for the wave of rapidly rising rents to push out from the centre and lift capital values on the rising tide.

For more advice on commercial real estate please contact Paul Windsor.