London is Leading the way with a Rental Recovery

Money Marketing reports the the first positive annual capital growth in exactly two and a half years; In one specific market sector, rents already appear to be back in positive territory. The IPD’s figures show that City and West End London office
rents are already back in positive territory, growing by 0.2 per cent and 0.3 per cent respectively in January this year. The Royal Institution of
Chartered Surveyors says January saw the first decline in the amount of office space available for rent in London for two years.

RICS senior economist Oliver Gilmartin said: Surveyors have turned mildly optimistic on the outlook for rents in London for the first time in over two years outside the retail sector as the capital continues to drive the recovery. The news that lease lengths are no longer declining in the capital and incentives are being scaled back for offices and industrials will come as some comfort for investors whom have driven a sharp rebound in pricing since the autumn.

To be sustained, the rapid rise in capital values in the London market needs to be supported by further rental increases, particularly as prime
yields are rapidly approaching financing costs.

The reluctance of banks to lend to developers has clearly added some support to rents in London as available space is no longer rising outside the retail sector. Significantly, development starts continue to fall back.