Shortage of central London offices 'will ramp up rents'
A lack of Grade A central London offices will be the biggest reason for rental values climbing over the next five years.

This is the assertion of a new Savills Outlook Spring 2012 report, which noted despite concerns about the eurozone debt crisis, unless the region crashes and takes down giants such as China and the US, demand for central London offices has no reason to fall.

While the next few years certainly cannot be described as providing a boom to the capital, the mechanisms of supply and demand will hold the commercial property market up.

Despite the financial difficulties of 2011, the second half of the year saw a rush in transactions of West End offices, with deals totalling £5.6 billion for the 12-month period.

As a result, 2011 is one of the top five strongest years over the past two decades regarding the number of transactions.

"The higher-than-normal volume of non-domestic investor interest in this market in the last four years has been down to London and the West End's much repeated 'safe-haven' status. Clearly, this level of demand will be sustained as long as commodity price, equity market, political and economic turbulence continues," the Savills report stated.

Last year, there were 15 deals recorded that were worth more than £100 million, with the majority of these made by overseas investors. Indeed, non-domestic demand is having a significant positive impact on the wider central London offices market.

Deals in the City were lower, with 3.9 million sq ft transacted last year. One of the main reasons for this, the study noted, was economic uncertainty in the financial sector resulting in many major occupiers delaying large office take-ups and refurbishments until a more stable time.

The recent Savills Commercial Development Activity report revealed that for the first time in eight months, commercial property developers are positive about the London market.

Posted by David Hudek

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