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UK's property consultancy Knight Frank said in a report that the prime rents in London's City and West End office markets will return to growth again in 2010, following the correction in 2008 and much of this year.
"This reflects less than expected distress in the market in 2009, a significant recovery in demand recorded in the summer, the recent rally seen in the global capital markets, and the drop off in speculative development completions expected between 2010 and 2012."
City prime rents are expected to rise 4% to GBP 44.00 per square foot in 2010, after falling 21% to GBP 42.50 per square foot in 2009.
Similarly, City rents are forecast to increase 37% to GBP 58.00 per square foot by the end of 2013.
Meanwhile, West End prime rents are anticipated to rise by 3% in 2010 to GBP 67.00 per square foot, compared to a 30% decline in 2009 to GBP 65.00 per square foot . West End rents are forecast to jump by 42% to GBP 92.50 per square foot by the end of 2013.
In real terms, City rents are currently at their lowest level for more than 20 years, while West End rents are at a 13-year low, Knight Frank said. The rapid correction in prime rents has succeeded in drawing occupiers back to the market, as they have moved to take advantage of the tenant-friendly environment, the consultancy said.
Going forward, Knight Frank expects a mix of a global economic recovery and diminishing choice of new build options to stabilise prime rents at their current levels for the next twelve months. Rental growth is expected to return in the final quarter of 2010. This is set to mark the beginning of a new cycle for prime rents, the firm said.
Bradley Baker, head of central London tenant representation at Knight Frank said, "The office market is beginning to emerge from the shadow of the banking crisis." "Rents are low by historic standards, and are landlords willing to offer generous incentive packages."
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