Prime rental growth across all central London submarkets amounted to an average of 3% in 2019. This mirrors the same average growth rate as in 2018, however the significant shift in the dynamics of supply and demand is starting to put upward pressure on rents, more noticeable in the highly sought-after locations.
Prime Grade A rents in the City East submarket covering the Aldgate and St Katharine Docks area increased by 13% in 2019, to £65.00 per sq ft. This was the big biggest rental movement recorded in 2019. Led by the delivery of new buildings to the market, it is not expected to see such level of growth in 2020. Double-digit growth of 11% was recorded for Grade A rents in the Docklands market, now at £52.50 per sq ft. Both these rental levels set new highs for these areas. Whilst not a new high, prime rents in the City core have nudged up to £70.00 per sq ft. This is the first time since 2017 that this level has been achieved. Elsewhere, in the City market the outer fringe areas of Clerkenwell/Farringdon and Old Street have both realised more growth over the year – 3% and 7% respectively. Both of which have turned the dial higher and set new rental levels akin to those commanded in districts of the West End.
Mayfair and St James’s continue to take the top spot at £120.00 per sq ft, this represents a 4 % increase over the year. Other West End submarket movers include Grade A rents in King’s Cross/Euston climbing by 3% to £80.00 per sqft and Paddington also increasing by 3% to £77.50 per sq ft. Whilst prime Grade A rental growth has been recorded in only 3 out of the 8 West End submarkets, we expect this to change in 2020, as the volume of available space continues to tighten.
Both the Southbank and Midtown have seen prime Grade A rents step up by 4%, and are now level pegged at £72.50 per sq ft. Yet a dearth of available prime space in these markets will see further pressure to increase in 2020, but equally should spur on developers to kick-start new development.
There was a noticeable shift in prime rental levels in 2019 with Grade B space. As highlighted in our Q3 edition of The Occupier. At year-end, Grade B rents moved out on average by 2%, with Midtown having the greatest rise of 13% to £65.00 per sq ft.
In the West End, the traditional submarkets of Mayfair/St James’s, North of Oxford Street, Soho and even King’s Cross/Euston have ratcheted up 3-4% of Grade B rental growth. The majority of submarkets are expected to succumb to more growth in the year ahead. As the pace of demand and volume of availability diverge, rental increases become inevitable.
20:20 VISION FOR 2020
Since the results of the EU referendum were announced in 2016 the start to a new year has been viewed with much apprehension by the business community. Lack of clarity and direction of Brexit, the impact it would have on workers, the bottom line or even how far in the future could plans be made, impacted confidence levels. This year the certainty is that Brexit has now happened, but that does not spell the end to the process. The rest of 2020 will see the UK’s future relationship with the EU be the main discussion point. The conclusion of which will affect the way we trade, work, travel, study, and reside with our EU neighbours.
Our research has shown that businesses across London have been more than resilient to the murkiness of recent politics, with leasing levels above average for the past three years. We don’t expect to see the degree of interest in London offices to dissipate over the course of this year, but satisfying requirements in a supply constrained market will no doubt make it more difficult to secure the right space, at the right time, at the right price. As such tenants with a renewed level of confidence will have their focus beyond 2020 or even 2021, commencing property searches at an earlier stage. Ramping up the competition for both current and future spaces, making the navigation of the market a little trickier for tenants.