Low vacancy for London’s best offices drives up rents

A supply-demand mismatch will help to boost advertised rents for prime-located, sustainable grade-A offices in London this year, according to a new report from Carter Jonas. Findings from the agency’s tenant representation and research team suggest that low vacancy and solid demand for environmentally sustainable grade-A space will “continue to underpin rents and limit choice for footloose tenants”. For the best office spaces in the West End districts of Mayfair and St James’s, advertised rents ranged from £165 to 195 per sq ft per annum in the first quarter of 2024. Refurbished grade-A space was priced at £95-115 per sq ft pa, while grade-B refurbished spaces were £67.50-£77.50. However, the agent said advertised rents for refurbished grade-A space in non-prime locations look set to stay static for at least the next two quarters. Carter Jonas added that rent-free period incentives could shrink in prime areas of the West End over the coming quarters. Otherwise, rent-free periods for sustainable grade-A space in other markets are forecast to remain broadly flat in the short term. Similarly, discounts for new and refitted, sustainable grade-A space are expected to remain at existing levels for at least the next two quarters. In Mayfair and St James’s, rent-free periods typically ranged between nine and 12 months on five-year leases, and 20-24 months on 10-year agreements. The longest incentives were seen in Docklands, Canary Wharf and Wood Wharf, lasting up to 16 months for five-year leases and 32 months on 10-year contracts. Elsewhere, researchers predict that the trend for office downsizing will weaken this year, on the back of improving weekly office occupancy rates and growing headcounts in some business sectors. Landlords will continue to enjoy a stronger bargaining position in the West End and Midtown submarkets during lease negotiations. In the City of London, City fringes and west and east London, occupiers are expected to retain more influence during negotiations. Super-prime office occupiers in the West End central districts paid some £145 per sq ft pa of rent in Q1 this year. Including rates and service charges, occupiers in those areas paid £216.95 per sq ft. Crossharbour in east London commanded the lowest rents in Q1, at around £35 per sq ft pa. This rose to £60.80 when factoring in rates and service charges. Photo by Global Warming Images/Shutterstock