An expensive taste for London will have positive effect on UK commercial property

by pallmallestates on September 26, 2013

  • Sumo

For the first time since the global financial crisis, London’s West End became the world’s most expensive office location this month. London rents have now risen to more than double those in the business districts of New York, Paris and Sydney, making the capital arguably the centre of European commerce.

With an enviable culture for innovation and a highly competitive climate, London is encouraging inward investment and economic growth.

This is particularly good news for Britain’s commercial property sector. With the cost of locating in London popular but expensive, many entrepreneurs, start-ups and growing enterprises will need to find a cheaper location alternative. Many will instead set up office in London’s outer suburbs or take advantage of improving high speed rail access from regional cities; the knock-on effect of this across the UK will subsequently be a positive.

Regional office property markets in the UK have been resilient of late, with several sectors enjoying growth. Total office space take-up volumes across six key markets – Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester – was up four per cent in 2012.

Edinburgh enjoyed particularly strong results, up 47%, with Glasgow up 15%, Aberdeen 14% and Manchester 10%. Overall the UK has seen a steady churn of office occupancy with many occupants wanting to improve the quality of office space and demanding new or newly refurbished Grade A property.

The United Kingdom overall remained the most active market in real estate investment last year in a world economy where average world rents only rose by 3%. When the number of European fiscal difficulties is taken into account the UK’s performance appears even more remarkable.

The Eurozone crisis generally damaged business confidence, with poor commercial rent performance across many European nations. The majority of rents across the EMEA region were stagnant, despite fourth quarter improvements across France, Germany and the Nordics.

In the US, occupancy costs per work station fell in every city, reflecting a poor labour market and low economic demand. Although this can in part be attributed to more efficient use of office space, when compared to the West End, where occupancy cost was more than three times the global average, things are looking positive.

However, despite excellent performance in London’s commercial property market, overconfidence should be avoided. There was, afterall, a large disparity between the £170 per square foot cost of a West End location, and third place Manchester, at £28.50. While multi-nationals are prepared to bid highly for an exclusive location in the centre of European business, it would be naïve to expect an immediate and marked improvement across the UK. A complete recovery will take time, but recovery, without a doubt, is under way.

David Campbell, of Pall Mall Estates, one of the UK’s leading providers of affordable commercial property for small and medium-sized enterprises (SMEs). Pall Mall Estates specialises in property across London and the West Midlands providing tenants with the space and flexibility to grow.

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